SEMA eNews Vol. 15, No. 50, December 13, 2012

Health Care Law’s Next Steps

The Affordable Care Act (ACA) was enacted into law in 2010 and is being slowly implemented over eight years. Several key provisions affecting small businesses and individuals take effect in 2013. 

Several taxes to help finance the law begin January 1. A 0.9% surtax will be added to the 1.45% Medicare payroll tax for individuals earning more than $200,000 and joint filers earning more than $250,000 per year. A new tax of 3.8% will be assessed on unearned income, such as capital gains, dividends, royalties and interest as well for individuals with gross income more than $200,000 ($250,000 for joint filers). This tax is above the 5% capital gains tax increase and 24.6% dividend tax increase set to occur if President Obama and Congress do not address the “fiscal cliff” before the end of the year. 

The threshold for claiming an itemized deduction on medical expenses increases from 7.5% to 10% of gross income for individuals under the age of 65. (For those 65 or older, the original percentage remains in effect until 2016.) The maximum flexible spending account (FSA) contribution will be limited to $2,500 per year, down from $5,000. These two changes are estimated to raise more than $40 billion over the next 10 years.

A surtax will be imposed for three years on employer and individual health plans covering an estimated 190 million Americans to help create a $25 billion fund to cover the cost of people with pre-existing conditions. Beginning in 2014, insurance companies cannot deny coverage to the sick. The tax starts at $63 but declines each year. It will be assessed on all "major medical" insurance plans, including those provided by employers and those purchased individually by consumers. 

Health insurance exchanges are scheduled to be established in every state by 2014, if not sooner. Small businesses (less than 100 employees) and individuals will be offered a menu of private-sector health plans from which to select based on uniform rules regarding offerings and insurance pricing. Consumers will be provided with transparent information to help understand the options and differences between the plans (covered benefits, deductibles, premium costs, etc.). Every state is encouraged to set up an exchange. If they decline, the federal government will establish the state program and also offer a national exchange. Regional plans may also be established. The exchange has the ability to pool a large number of potential consumers and thereby help organize a more competitive marketplace, especially if cost is a primary issue.

A SEMA Members Guide to the Health Care Law is available, with time tables for implementation. 

For more information, please contact Dan Sadowski, director of congressional affairs at dans@sema.org.

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