News Column

Get Ready for Changes in Health-care Laws in 2013

Page 4 of 1

The "fiscal cliff" is grabbing all the headlines these days, as Congress and the White House haggle over potential tax increases and spending cuts.

But even as lawmakers go back and forth in Washington, some consumers are already primed to see changes on their tax returns after 2013. That's because several provisions of Obamacare take effect on Jan. 1.

Experts say 2013 isn't as big a year for Obamacare as 2014, when individual and business mandates kick in.

"There won't be any significant changes in Nevada's insurance marketplace in 2013," said Todd Rich, deputy commissioner of the Nevada Division of Insurance.

Added Lyndsay White, a tax manager and CPA with the Las Vegas accounting firm of Houldsworth, Russo & Co.: "There's not as much going on in terms of implementation in 2013. The questions I'm getting are about what happens in 2014."

Still, small-business owners, high-income earners, patients who write off medical expenses and consumers with flexible spending accounts will notice a few tax tweaks after New Year's Day.

There also will be a new tax on medical devices, such as pacemakers, MRIs and tongue depressors. For the first time, Medicare payroll taxes will apply not just to wages, but also to some investment income. And Nevadans will be able to enroll for the first time in member-owned insurance co-ops, designed to offer competition for existing insurance plans.

The idea behind many of the changes is to raise revenue for Obamacare's costs, including subsidies to help Americans buy health insurance after 2014's coverage mandate kicks in.

In all, 2013's new taxes and fees would raise $258.4 billion in federal revenue through 2019, according to numbers from the National Federation of Independent Business' Research Foundation.

New Medicare taxes will raise the biggest chunk of that revenue.

MEDICARE SURTAX

Reform-related taxes won't directly hit many consumers. But accountants say the levies are already affecting the economy in subtle ways.

The taxes include a 0.9 percent Medicare surtax, on top of the existing 1.45 percent Medicare payroll tax, on wage income above $200,000 for single filers and $250,000 for joint filers.

There also is a 3.8 percent Medicare tax on investment income such as rent, dividends, interest and capital gains on properties, again for single filers earning more than $200,000 to joint filers earning more than $250,000.

Together, the two taxes will raise $210 billion through 2019. Revenue raised will not go to Medicare, but to funding coverage subsidies after 2014.

Though the taxes haven't yet taken effect, Chris Wilcox, a shareholder in local CPA firm Johnson Jacobson Wilcox, said he has clients who are shaking up their business practices to prepare for the costs.

"That's a pretty significant tax burden that will hit higher- income people, and a lot of them own the businesses you and I work for," Wilcox said.

One client is trying to beat the clock on a business purchase, because the new taxes would boost the buying price after Jan. 1. Others are paying out dividends now, to avoid higher investment income levies, while still others are sitting on their cash and doing nothing at all.

"There's just so much uncertainty with what the true cost is going to be for Obamacare, and they're just kind of sitting on money they have or paying out dividends," Wilcox said. "That was money that was earmarked six months ago for growth."

White said some high earners who own S corporations, or small businesses with profits and losses passed through to individual tax returns, will take less income in 2013 to avoid the 0.9 percent Medicare surtax. That could mean less spending in the local economy, and also less revenue than the federal government expected to take in with the tax.

What's more, the new tax comes amid negotiations to let Bush-era tax cuts expire for high earners, and that could hold back the labor market.

"In terms of hiring, I think all of our clients in particular are afraid of the tax cliff more than they're afraid of new (Obamacare) taxes, although all of it put together is not making them feel secure tax-wise," White said.

Then there's the medical device excise tax, a 2.3 percent levy on the sales price of taxable medical devices, excluding eyeglasses, contact lenses and hearing aids. Las Vegas isn't a big center for medical-device manufacturing, but the fee is relevant to local patients because industry observers say new taxes would be passed on to consumers. And the Medical Device Manufacturers Association said on Dec. 5 that the tax, which would raise $29 billion through 2019, has already cost the sector jobs.

The device tax may not stand: The House of Representatives passed a bill to repeal it in June, and though the Senate hasn't taken up the issue, 17 Senate Democrats on Dec. 10 urged a postponement in the tax to seek more clarification from the IRS on how it would be implemented.

It's not just tax rates that are changing after Jan. 1. Some write-offs and credits are set to adjust as well.

FLEXIBLE SPENDING ACCOUNTS

Consumers with flexible spending accounts will see new limits on how much they can contribute. The accounts, which let people sock away pretax cash for uncovered health expenses such as deductibles and dental care, will be capped at $2,500 a year in contributions.

Until now, there has been no legal cap on savings in the plans.

The idea behind the cap is to boost revenue by decreasing pre- tax contributions. Forecasts say the rule will raise $13 billion through 2019.

It's not the first time Obamacare has altered the regulations behind flexible spending accounts. As of 2011, consumers no longer could use their savings to buy over-the-counter medications such as cough syrup and allergy pills.

White said the modification could be "quite a cut" for families accustomed to putting away more tax-free money to pay for out-of- pocket costs.

"When you talk about medical expenses and co-pays for a family of four, $2,500 doesn't actually go very far," she said.

But employees can open separate health savings accounts to recover some of their lost savings opportunities, White added. HSAs, which typically come with high-deductible insurance plans, also let consumers save tax-free dollars. The 2013 limit for HSA contributions is $3,250 for an individual and $6,450 for a family.

Plus, spouses can each have a flexible spending account, and individuals who hold two jobs can have an FSA at each workplace, if they're offered.

If you spend enough on out-of-pocket health costs to write off your expenses, expect to meet a higher deductible threshold in 2013.

The IRS traditionally has allowed patients to deduct medical expenses once outlays reached 7.5 percent of income. That share jumps to 10 percent after Jan. 1. Federal officials estimate the rule will yield an additional $15 billion in revenue through 2019.

White said she doesn't expect the new threshold to affect a lot of people. Groups that could feel it the most include seniors and the seriously ill.

Though new taxes and caps on deductions start Jan. 1, you will have to wait until the fall to take advantage of a new insurance plan debuting on the local market.

HOSPITALITY HEALTH CO-OP

Beginning in October, Las Vegans will be able to enroll in the Hospitality Health CO-OP, or consumer operated and oriented plan.

The CO-OP is working now on meeting state requirements for insurers. State health officials just approved its network's adequacy, and it should have its certification of authority as an insurance agency in January, said Bobbette Bond, the CO-OP's project coordinator.

The group must be ready to accept members in October, so it can begin offering coverage on Jan. 1, 2014, in time to participate in the state's insurance exchange.

Bond said the CO-OP will be able to accept 30,000 members in its first year.

The Culinary Health Fund is co-sponsoring the CO-OP, along with its national parent, UNITE HERE Health, and the Health Services Coalition, a local consumer advocacy group that negotiates health care costs and tracks quality of care for more than 300,000 union members.

But you won't have to be a union member to take advantage of the CO-OP. Bond said the group will target individuals and small- business owners who want an alternative to large, corporate insurers based out of state.

"We really think it's going to be an attractive option for anyone who's not happy with their commercial insurance, or anyone who's attracted to the idea of nonprofit health-care coverage," Bond said. "It will appeal to anybody who's interested in the whole concept of community first and Nevada first, and who wants to keep resources in Nevada, as opposed to buying coverage from commercial insurers whose profits go out of state. We think that's really one of our most differentiating qualities."

Plus, unlike traditional insurance, the CO-OP's members will have some say in the direction of its programs and coverage. More than half of its board must be members or customers, and directors will have to be elected by a majority vote.

Also unusual will be the simplicity of its health plans, Bond said.

"We're really focusing on that. How simple can we stay and still be in compliance with exchange regulations?"

And the CO-OP will have patient advocates who guide members through the health system from the moment they enter it. For example, diabetic patients will receive guidance and follow-up to make sure they get preventive care and keep up with their specialist visits, medications and blood-glucose monitoring.

It's too early to quote premiums, Bond said, but she said the CO- OP expects to offer competitive coverage rates.

More importantly, she said, the CO-OP will give locals new power over their health coverage.

"It's a big deal for small businesses to have the opportunity to participate in the local economy in this way," Bond said. "Everything we do will be consumer-focused and consumer-friendly. The nonprofit insurance model is a very different model for Nevada."

The CO-OP is looking for office space and staffing up now. It is hiring directors of operations, outreach and advocacy, and is looking for workers in member services and care management.

Bond said she expects the group to have about 40 employees by the end of 2013.

The Centers for Medicare and Medicaid Services will monitor CO- OPs through quarterly financial statements, cash flow numbers, enrollment data, site visits and annual external audits.

Hospitality Health CO-OP received two loans totaling $65.9 million from the Centers for Medicare and Medicaid Services in May, to ensure it has assets to pay its claims. The CO-OP will pay back the loans from its profits over five to 15 years.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512. Follow @J-Robison1 on Twitter.

Health care reforms already in effect

Some reform provisions are already in full force and affecting consumers, insurers and health care markets:

* Children and pre-existing conditions. As of 2011, insurance companies could no longer cite pre-existing conditions to limit or deny benefits or coverage on insurance policies for those under 19. The Obama administration credited the rule with guaranteeing coverage to 17 million American children with pre-existing conditions. In practice, though, the law has had unintended consequences. A 2011 Politico study found that insurers in 34 states stopped selling child-only insurance policies, and 20 states - including Nevada - no longer have any carriers selling child-only policies. The reason? Insurers said parents would wait until their children got sick to buy coverage, and premiums for all policyholders would spike to cover the costs of a less-healthy membership pool.

* Insurance for dependents. After September 2010, kids could stay on their parents' insurance plans until age 26. Observers agreed the law had an effect: Numbers from the Centers for Disease Control and Prevention showed an 18 percent drop in 2011 in the share of young adults without health coverage. Health policy experts at both liberal and conservative think tanks credited the decline to this provision of Obamacare. But some policy watchers said the number of insured young fluctuates with the economy, which improved from 2010 to 2011 and may have given 20-somethings more access to jobs and employer-sponsored health care. Plus, some young adults who could have qualified to buy plans on their own through work likely opted to stay with mom and dad's plan to save on premium costs and boost take-home pay, so there are doubts about whether the regulation reached truly uninsurable kids. And a 2012 report from human resources consulting firm Towers Watson found that dependent- coverage rules boosted overall premiums 3 percent and have encouraged increasing numbers of employers to stop covering dependents altogether.

* No out-of-pocket costs. Obamacare prohibited providers and insurers from charging patients for routine physicals, vaccines, mammograms and other preventive care and screening after 2010. But the rule applies only to insurance policies written since it took effect. Little research is available on how this provision has affected premiums.

* Medical-loss ratios. This rule, which kicked in after January 2011, says health insurers must spend at least 80 percent of premiums on medical care and quality improvements or return the difference to consumers or employers. The law resulted in August rebates averaging $96 for about 55,000 Nevadans covered through five of the state's 40 insurers.

* * *

Two changes that didn't make the cut

Some provisions of Obamacare never made it into practice, either because they were fiscally unsustainable or impractical. Here are the two biggest measures stripped from the bill so far:

* Community Living Assistance Services and Supports (CLASS) Act. Under this voluntary long-term disability program, enrollees who paid benefits for five years would have been entitled to $50 or more a day in payments for in-home care. Supporters said the law would help Americans afford nursing care and draw attention to the importance of long-term care funding. Critics called the regulation a gimmick to raise revenue that would hide the costs of Obamacare. Health and Human Services head Kathleen Sebelius killed the act in October 2011 after the U.S. Centers for Medicare and Medicaid Services said the program wouldn't generate enough revenue to pay for benefits, and would cost the federal government more than it took in after 2025.

* Paperwork. Obamacare included a provision requiring businesses to file 1099 miscellaneous income forms with the IRS anytime they spent more than $600 with any vendor business, rather than just independent contractors. The idea was to boost tax compliance - and revenue for the implementation of Obamacare - by discouraging under- reporting and fraudulent deductions on 1099 income. But critics said the rule would do little to close the noncompliance gap, because it was unlikely that major suppliers such as Staples or Costco were hiding income from client businesses. The regulation would also have flooded the IRS with millions more tax documents each year. Congress repealed the rule, and the president signed the repeal into law, in spring 2011.

Some reform provisions are already in full force and affecting consumers, insurers and health care markets:

- Children and pre-existing conditions. As of 2011, insurance companies can no longer cite pre-existing conditions to limit or deny benefits or coverage on insurance policies for kids under 19. The Obama administration credited the rule with guaranteeing coverage to 17 million American kids with pre-existing conditions. In practice, though, the law has had unintended consequences. A 2011 study from Politico found that insurers in 34 states stopped selling child-only insurance policies, and 20 states - including Nevada - no longer have any carriers selling child-only policies. The reason? Insurers said parents would wait until their children got sick to buy coverage, and premiums for all policyholders would spike to cover the costs of a less-healthy membership pool.

- Insurance for dependents. After September 2010, kids could stay on their parents' insurance plans until age 26. Observers agreed the law had an effect: Numbers from the Centers for Disease Control and Prevention showed an 18 percent drop in 2011 in the share of young adults without health coverage. Health policy experts at both liberal and conservative think tanks credited the decline to this provision of Obamacare. But some policy watchers said the number of insured young fluctuates with the economy, which improved from 2010 to 2011 and may have given twenty-somethings more access to jobs and employer-sponsored health care. Plus, some young adults who could have qualified to buy plans on their own through work likely opted to stay with mom and dad's plan to save on premium costs and boost take-home pay, so there are doubts about whether the regulation reached truly uninsurable kids. And a 2012 report from human- resources consulting firm Towers Watson found that dependent- coverage rules boosted overall premiums 3 percent and have encouraged increasing numbers of employers to stop covering dependents altogether.

- No out-of-pocket costs. Obamacare prohibited providers and insurers from charging patients for routine physicals, vaccines, mammograms and other preventive care and screening after 2010. But the rule applies only to insurance policies written since it took effect. There's little research available on how this provision has affected premiums.

- Medical-loss ratios. This rule, which kicked in after January 2011, says health insurers must spend at least 80 percent of premiums on medical care and quality improvements or return the difference to consumers or employers. The law resulted in August rebates averaging $96 for about 55,000 Nevadans covered through five of the state's 40 insurers. Some provisions of Obamacare never made it into practice, either because they were fiscally unsustainable or impractical. Here are the two biggest measures stripped from the bill so far:

- Community Living Assistance Services and Supports (CLASS) Act. Under this voluntary long-term disability program, enrollees who paid benefits for five years would have been entitled to $50 or more a day in payments for in-home care. Supporters said the law would help Americans afford nursing care and draw attention to the importance of long-term care funding. Critics called the regulation a gimmick to raise revenue that would hide the costs of Obamacare. Health and Human Services head Kathleen Sebelius killed the act in October 2011 after the U.S. Centers for Medicare and Medicaid Services said the program wouldn't generate enough revenue to pay for benefits, and would cost the federal government more than it took in after 2025.

- Paperwork. Obamacare included a provision requiring businesses to file 1099 miscellaneous income forms with the IRS anytime they spent more than $600 with any vendor business, rather than just independent contractors. The idea was to boost tax compliance - and revenue for the implementation of Obamacare - by discouraging under- reporting and fraudulent deductions on 1099 income. But critics said the rule would do little to close the noncompliance gap, because it's unlikely that major suppliers such as Staples or Costco were hiding income from client businesses. The regulation would also have flooded the IRS with millions more tax documents each year. Congress repealed the rule, and President Obama signed the repeal into law, in spring 2011.

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