Thursday, December 30, 2010


Happy New Year
So here we are on the verge of 2011.  Listed below are some of the changes that are going into effect in 2011.....maybe.  The reason I say maybe is because we never know what is going to be taken out or watered down under PPACA, as in the case of employers moving their medical plans from one carrier to another terminates your grandfathered status.  As you know, that was overturned.  Click here for more information on this. 

PPACA in 2011

1)       Establish National Voluntary Long-Term Care Insurance (Class Act-Community Living Assistance Services and Support Program)- Average premium could be approximately $150/Month.  There is a 5 year Cliff Vesting (can't use for first five years of paying in). And you must be actively at work 3 out of the 5 years you are paying in.  For more information on this, click here.

2)       Employers must report value of each employees health coverage on their W-2.  Employer must report the entire cost, not just the employers portion.

3)       Limits OTC medication reimbursements in FSA, HSA, HRA unless prescribed.  You are not able to use your HSA for over the counter medications unless you have a prescription.  Get your doc to write you prescriptions for a year for all your OTC meds, you just need to keep in on file.

4)       Penalties for Unqualified distributions from HSA increased to 20% from 10%.

5)       Fees imposed on Pharmaceutical Manufacturers and Importers

 So with that said, I hope you all have a Happy and Safe New Year!

Thursday, December 23, 2010



Tuesday, December 14, 2010

Virginia, Judge Hudson, Just Said No!!.....To The Individual Mandate

In Virginia, U.S District Court Judge Henry Hudson stated in a 42 page opinion that "Neither the Supreme Court nor any court of appeals has extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market". 

In other words, Judge Hudson, a 2002 republican appointee from former President George W. Bush, was the first federal Judge to "Just Say No" to the Individual Mandate.  However, two other Judges from Virginia and Michigan have upheld the law.  Both of these Judges are Democrat appointees. 

According to incoming Speaker of the House, John Boehner, "Cash-strapped states should carefully weigh the benefits of investing time and resources in Obamacare's implementation now that its central mandate (Individual Mandate) has been ruled unconstitutional.

So what does this mean?  Well since Judge Hudson only ruled against the Individual Mandate it means that the Federal Government can go ahead with setting up the rest of the legislation. And it seems that the White House isn't going to be eager to have this pushed to the Supreme Court where Republicans hold a 5-4 majority.  It could take as long as two years for it to finally arrive.

Also, this could mean that if the Individual Mandate is taken off the table, we are pretty much where we are now, except, all coverage will be guaranteed issue, which is "no questions asked health insurance".  Therefore, most of the people who get coverage will be the ones who need it.  And, as the health reform law is set-up, they will be able to get it any time they want, so why pay for it now when they don't need it?  Moreover, if only the people who need coverage are getting it, there will be huge adverse selection issues.  In turn, premiums will skyrocket and we could be in much, much worse shape than we are now. 

In addition, there is also a lawsuit that has been filed in Florida that has 20 states backing it and being heard by U.S. District Judge Roger Vinson.  The lawsuit states that the $2.5 Trillion  Health Care reform pushed through by the Obama Administration violates state government rights and would force huge spending requirements on already cash-strapped state governments.  The case is set to be heard on Thursday, December 16, 2010.

Monday, December 6, 2010

"Read My Lips, I'm Rolling Back Bush-Era Tax Credits".......Well, Perhaps Not.

In an address to the to the American people this evening, December 6, 2010, the President indicated that compromises needed to be made.   It seemed that he was talking more to democrats, almost trying to convince them that his decisions/compromises were necessary.  In his address, he slated several items which he was going to take back to the democratic caucus:
  1. Temporary 2% Reduction in Payroll Taxes
  2. 2 Year Extension of Bush-Era Tax Credits-At first, the President was trying to get the extension for the middle class only and remove it for Americans earning more than $250K per year. 
  3. 13 Month Extension on Unemployment Benefits
  4. Estate Tax Compromise-2 Years at 35% with a 5 Million Exemption
  5. 1 Year Reduction in Social Security Taxes-This was a late add-on. 
So why is this important to Health Reform (PPACA)?  It is important to health reform because these taxes could potentially have been a huge funding source for the reforms.  Just the elimination of the Bush-Era Tax credits alone could cost the Federal Government more that one trillion dollars.  This, in-turn, could hamper the amount the Federal Government would be able to push to the States in order to set-up the State-Run Health Reform Programs.  For more information on the funding of health reform,  please go to: "Guess Who Gets to Pay for Health Reform?" (PPACA)

Wednesday, December 1, 2010

The Class Act-Coming in 2011

Has anyone heard of the Community Living Assistance Services and Support Act or Class Act? (CLASS ACT) Well there really hasn't been too much discussed regarding this feature of the Health Reform (PPACA).  But it could be a good thing.....maybe. 

This is the Government-Run, Long Term Care Plan that is slated to go into effect in 2011.  As of right now, many of the details are yet to be ironed-out but below are some main points of the plan. 
  1. Average premium should be in the $150 per month range (less for youngers, more for olders)
  2. You must pay into the plan for 5 years before accessing any benefits
  3. You must be actively at work at least 3 out of 5 years
  4. Guaranteed Issue (Except for the limitations noted above)
  5. It is a voluntary plan primarily delivered through employers-employers are able to opt-out or opt-in.  If employers opt-in employees area able to opt-out on a case by case basis.
  6. According to The Congressional Budget Office (CBO), it projects the CLASS ACT will produce a total of $70 Billion in surplus by 2019. 

So these are the basic main points of the plan.  For many who would otherwise be un-insurable, this could be an excellent alternative to spending down assets and utilizing medicaid.

But, for those that are relatively healthy, have significant assets to protect, this may not be the option for you.  Those that are healthy will bypass this option and go to the individual market to purchase, arguably, better and more comprehensive coverage at a lower cost.  Therefore, what you are going to have is a huge pool of unhealthy people who will probably require Long Term Care at some point or another. 

Many critical thinkers believe that this plan is nothing more than a catastrophe waiting to happen.  According to Kent Conrad, (D-ND), Chairman of the Senate Budget Committee, speaking on the sustainability of the Class Act stated "a ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of."   

The 70 Billion surplus that the program is designed to achieve is primarily due, in large part, to not being able to access benefits for five years.  In other words there will be five years worth of buy-in and no benefits being paid out.  However, in that sixth year, as benefits are paid out,  the program will start a death spiral that will, more than likely,  be unsustainable. 

It would seem that the only way for this program to have any chance of being able to survive on its own would be to make the program mandatory, every person would need to buy in.  And we all know how well our current mandatory programs are working now. 

Make no mistake about this program, it is designed to subsidize the ever-increasing cost of those people who have no long term care insurance and are on medicaid.  If the government can get people to pay for something they are going to receive anyway, why not?

Monday, November 22, 2010

Could This Be The First Signs That The Hard Shell of Health Reform May Be Softening??!!!!


Below is information sent directly from Cigna Health Plan.  If you recall, any employer that made any kind of material changes to their health plan, including moving from one carrier to another, lost Grandfathered Status.  In Interim Revised Regulations, a health plan, after November 17th, 2010, will not lose Grandfathered Status simply because they move from one carrier to another.  Which is good because this part of the law was ridiculous and truly made no sense.
Many plans may want to retain Grandfathered status so that their Health plan would not need to adhere to many of the provision in the PPACA (Health Reform).  This is also important because it could be seen as the hard shell of the PPACA under Democratic Rule starting to soften with the New Republican Controlled  House of Congress getting ready to be installed.

Grandfathered Status Amendment Allows Plans to Change Policies and Carriers
On November 15, the Departments of Treasury, Labor, and Health and Human Services jointly announced that they are amending the Interim Final Regulations on grandfathered health plan status under the Patient Protection and Affordable Care Act (PPACA). The amendment allows employers to switch insurance carriers and/or change their funding from Administrative Services Only (ASO) to fully insured without losing grandfathered status.
The original Interim Final Regulations stated that changing insurance carriers would cause an insured group health plan that was in effect on March 23, 2010 (the date PPACA became law) to lose its grandfather status. For plans wanting to maintain grandfather status, this has been an important consideration.
The Interim Final Regulations are amended as of November 17, 2010 to reflect the following changes for group health plans. These changes are not retroactive, nor do they apply to individual policies.
  • Change of Insurer: If an insured plan changes insurance policies (new carrier) and the new policy is effective:
    • Prior to November 17, 2010: The plan will lose grandfathered status.
    • On or after November 17, 2010: The plan will not lose grandfathered status, provided no other changes are made to the plan that trigger loss of status (i.e., reductions in benefits or employer contribution).
  • ASO to Insured: If a plan changes funding from self-insured to insured and the new policy is effective:
    • Prior to November 17, 2010: The plan will lose grandfathered status.
    • On or after November 17, 2010: The plan will not lose grandfathered status, provided no other changes are made that trigger loss of status.
  • Documentation: The new health insurance carrier must obtain documentation of the prior plan’s terms from the new policyholder so the new carrier can determine whether the change in insurance policies will result in a reduction in benefits or employer contribution sufficient to trigger loss of grandfather status. There’s dual responsibility as the policyholder must also sufficiently provide the documentation to the carrier. Documentation includes:
    • Benefits
    • Individual cost-sharing
    • Employer contributions
    • Annual limits
Yet to be Clarified
The Federal government has yet to clarify whether a change in prescription drug formulary, network or funding status from insured to ASO will cause a loss in grandfathered status.

Wednesday, November 10, 2010

Guess Who Gets to Pay for Health Reform (PPACA)?

Paying for a One Trillion dollar Health Care plan isn't going to be easy.  However, this point may be moot as the republicans have vowed to kill health reform where it stands.  But for the sake of argument, and assuming that the republicans aren't able to stop the de-funding of the reforms, below is a listing of taxes, penalties and fees associated with paying the bill.

  1. Taxes on Tanning Services-This should raise and estimated $10 Billion.  This starts in 2010
  2. Penalties on Unqualified Distributions from HSA's.  The Penalty will be increase from 10% to 20% starting in 2011 and should raise an estimated $1.4 Billion
  3. Fees on Pharmaceutical Manufacturers and Importers-This takes effect in 2011 and should raise an approximate $27 Billion.
  4. Comparative Effectiveness Fee-This is a fee that is going to levied on every member in a health plan ($1 the first year then $2 per year after).  Comparative Effectiveness is where a Non-Governmental Third Party gathers and disseminates health care findings to decision makers.  This goes into effect in 2012 and should raise an estimated $2.6 Billion
  5. Increase the itemize tax deduction for medical expenses from 7.5% to 10% of Adjusted Gross Income, starts in 2013 and should raise an approximate $15 Billion.
  6. 2.3% excise tax on medical device manufacturers and importers.  This goes into effect in 2013 and should raise an estimated $20 Billion.
  7. Limit Flexible Spending Account (FSA) deferral contributions to $2500 per year.  This will be indexed for inflation, will go into effect in 2013 and will raise an estimated $13 Billion.
  8. Health Insurance Companies will be required to pay a fee in 2014 towards the cost of the reform and should raise an estimated $60 Billion.

If we total all these fees, taxes and penalties we come to approximately $149 Billion Dollars!

However, there are two taxes not mentioned that together raise an additional $220 Billion Dollars alone.

Starting in 2012, for people making over $200,000 Individually or $250,000 Filing Joint, there will be an additional .09% Medicare tax on incomes over that amount.  In addition, there will be  an additional 3.8% tax on unearned income (dividends, interest, etc) if earning over those thresholds.  Therefore, if you are earning close to those amounts as a married person, you may want to consider a divorce to protect your nest egg. That will get you to $400,000 before you're hit with the taxes.  As a side-note, not so sure I'd want to be around for any of those "honey we need to get a divorce" conversations.

Now, this still leaves a fairly large gap of funding that isn't accounted for and I'm supposing that much of it will rest on the backs of our employers by way of penalties and fines for not offering health insurance or not offering comprehensive enough health care coverage.

In addition, the Bush Tax Cuts are set to expire January 1, 2011 and this also would create a huge funding source.  However, it remains to be seen if President Obama is going to extend those tax cuts.  Because, if he does, in a sense he is de-funding his own Health Reform Law.

Friday, November 5, 2010

Small Business Tax Credits under Health Reform (PPACA)...It's a Good Thing!

In the New Health Reform Law there is some potential good news for employers who pay for a portion of their employees health insurance.  Well sort is how it works (it's a bit confusing...and long):

Small Business Health Care Tax Credits (Retroactive effective January 1, 2010)

Eligible employers may be offered a credit of up to 35% of what they paid towards the cost of employee’s health care!

Who is Eligible ?

Employers with less that 25 Full Time Equivalent (FTE) employees and average wages below $50,000 and contribute at least 50% toward the cost of the employees individual plan. 

Highest credits give to employers with 10 or less FTE employees and average wages below $25,000.

As the number of employees exceed 10 and the wages exceed $25,000, the credit decreases until at 25 employees and $50,000 average wages, the credit is $0

How do I calculate my number of FTE employees?

Divide the total number of hours worked by all employees (excluding owners and seasonal employees) by 2080 and round to the next lowest whole number.   If employees worked more than 2080 hours then use 2080.

Seasonal employees are not counted in the FTE calculation if they worked less than 120 days in the tax year.  However, premiums paid on their behalf may be counted towards the credit.

Sole Proprietors, Partners in a partnership, shareholders owning more that 2% in a S Corporation and any owner of more than 5% of other business…… and all family members are not considered employees for purposes of the tax credit.  Therefore, premiums paid on their behalf are also not counted towards the credit as well.

For Example, Jones Company has 5 full-time employees and 3 part-time employees.  The part-time employees work 20 hours each per week.  Therefore:

(5 X 2080 = 10,400)
(3 X 1040 = 3,012)

13,412 divided by 2080 =6.45 or 6 (Rounded to the next lowest whole number)

How do I determine average annual wages?

You will divide the total wages paid for FTE employees……not including those already listed as ineligible) by the total number of FTE.

$200,000 (total wages)  /  10 (FTE Employees) = $20,000 (Average Annual Wage)

How do I calculate my credit?

If you have 10 or less FTE employees and an average annual wage under $25,000 then you are eligible for a 35% credit on what you have paid towards your employees coverage.

What happens if I have 10 or more FTE’s and/or the average annual wage is over $25,000?

This is where it gets a bit tricky………………

For every employee over 10, the credit is reduced by 1/15th and 1/25th for every thousand dollars over $25,000.

For example:

ABC Company had 12 FTE Employees and an Average Wage of $30,000.  The employer paid $28,800 ($200 X 12 Employees X 12 months).

Therefore the calculation looks something like this:

Calculate what the credit would have been without reductions…

(35% X $28,800) = $10,080

Then calculate the reduction of credit for number of employees over 10…..

($10,080 X 2/15) = $1,344 (Reduction of credit)

Then calculate the reduction of credit for each thousand dollars over the $25,000 threshold….

($10,080 X 5/25) = $2,016 (Reduction of Credit)

The credit then looks something like this:

$10,080 (Total Possible Credit) minus $1,344 (Reduction for number of employees over 10) minus $2,016 (Reduction for $5,000 over $25,000 threshold)  = $6,720 Tax Credit

So how do you claim the tax credit?

Tax exempt organizations are eligible for a maximum 25% tax credit (as opposed to 35% for all others) and the credit is a refundable credit.  In addition the tax credit may not exceed the total amount of income and medicare tax that the employer is required to withhold from employees wages and the employer share of medicare tax on employees wages for the year.

Amounts paid by the employer for dental and vision plans are also eligible but must meet these same requirements separately.

The Kicker

Most companies (except non-profits) must claim the credit as an offset of income tax liability.  Therefore, in order to claim the credit, the company must make a profit.  In other words, if the company is operating at a loss for the year, they are not allowed to take the credit.  Doesn't this seem a bit backwards since the companies who would need this credit the most, aren't going to qualify? 

Wednesday, November 3, 2010

Republicans won the House. Now What Happens To Health Reform? (PPACA)

Nancy and Steny Kissing
each other goodbye. 
Most everyone, at this point, must be thinking.....what is going to happen with Health Reform under the PPACA?  According to the LA Times, the soon to be Speaker of The House, Rep. John Boehner of Ohio vows to dismantle the health care monstrosity.  "The American people are concerned about the government takeover of health care", he said.  " I think it is important for us to lay the groundwork before we begin to repeal this monstrosity and replace it with common-sense reforms that will bring down the cost of health care insurance in America."  This sentiment of repeal, according to a November 1, 2010 Rasmussen Poll, is shared among 58% of likely US Voters.

I know that many on the right and some turn-coats on the left have vowed to repeal the health care reform (PPACA) signed into law on March 23, 2010.  I honestly have no idea how that would happen.  Not that it couldn't, I just don't know enough about the politics to be sure.  However, what I do know is that the Republican House has already set a course through amendments and bills to "chip away" at the current law.  Some of these bills include: 

  1. No less than 9 representative have bills to repeal the Patient Protection and Affordable Care Act.
  2. H.R. 4904-Prohibits the use of funds for implementation or enforcement of any federal mandate to purchase health insurance. (Poe, R-TX)
  3. H.R. 4985-Medicare Decision Accountability Act of 2010 (Roe, R-TN)-This bill repeals legislation to set-up a Independent Advisory Board that was enacted in the PPACA and gives bureaucratic control to determine what benefits are covered and how much physicians are to be paid.  The IPAB sole intention will be to determine whether Medicare is spending more than budgeted and offer "fixes" to cut-back on that spending.
  4. H.R. 4995-End the Mandate Act of 2010  (Paul, R-TX)-Repeals the sections of PPACA that force all Americans to purchase federally-approved health insurance plans.
  5. H.R. 5054-Prevent IRS Overreach Act of 2010 (Forbes, R-VA)-Prohibits the IRS from hiring, transferring or appointing individuals for positions used to enforce provisions of health care reform.
  6. H.R. 5126-Helping Save Americans' Health Care Choices Act of 2010 (Fleming, R-VA)-repeals provisions of the PPACA including the additional taxes on Health Savings Accounts (HSA) and the prohibitions on tax-free reimbursements for over-the-counter medications as well as remove the cap on Flexible Spending Accounts (FSA's).
  7. H.R. 5141-Helping Small Business Paperwork Mandate Elimination Act (Lungren, R-CA)-Repeals the tax reporting mandate included in the PPACA thats requires all business to file 1099's for all transactions in goods and services over $600 a year. 
  8. H.R. 5444-To Amend the PPACA to permit a State to elect NOT to establish and American Health Benefit Exchange (Paul, R-TX)-This bill places individuals back in control of health care by replacing PPACA with reforms designed to restore a free market health care system.
So it seems to me that the Republican House, if they can't repeal the PPACA, will make sure that Health Reform is not going to look, at all, like it does today.  If they are successful , they will be taking away funding to manage it, taking away committees to oversee the administration of it and eliminate the health care exchanges to deliver it.  Doesn't seem like much of the PPACA is going to be left after they are done with it.

Monday, November 1, 2010

The Individual Mandate-What Coverage Every Person Must Take-Or Else....

Individual Mandate

Individuals must have health coverage effective January 1, 2014 either through employer coverage, government, private or the exchange.  If individuals elect to purchase coverage through their State run Exchanges (place where we will purchase coverage) they will be able to choose from several options:  The plans will range from minimum plan or Bronze Plan to the Silver plan, Gold and Platinum Plans.  In addition for those under 30 years old, you will be able to purchase a catastrophic plan which is kindly named the "young and invincible" plan.  This plan makes absolutely no sense.  Since all health coverage offered through the exchange will be community rated, you want the younger and healthiers on plan and paying into the system to help off-set the older and/or unhealthiers. 

Many States are arguing the constitutionality of the Individual Mandate

This is how the cost of the plans will break-down for people earning at or below 400% of the Federal Poverty Level (FPL)

Individuals earning  up to 133% of Federal Poverty Level (around $14,000/Year) will be eligible for free coverage under expanded version of Medicaid.  Individuals earning 133%-400% of Federal Poverty Level will receive a subsidy based on a sliding scale up to 400%.  400% of FPL for an individual is $44,000 per year and a family of four is $88,000 per year.  Nobody will pay more than 9.5% of their annual household income on health coverage if they fall at or below 400% of the FPL.


So What if You Say Forget It, No Coverage for Me........?

Fines for not having coverage

In 2014 you will pay a fine of $95 per year or 1% of income whichever is greater and by 2017 amount goes to $695 or 2.5% of income to a maximum of 3X the individual penalty.

Non-payers will receive a notice from the IRS.  If they don’t pay, the IRS will take it from their tax refund in the future.  If they continue to not pay the fine, they will not be subject to any criminal prosecution or penalties.  The secretary cannot file a notice of lien or file a levy on any property……..In other words, no teeth to this penalty.

Friday, October 29, 2010

To Include or Not Include the Value of Employees Medical Coverage on W-2's in 2011

The answer is least for now. Under PPACA (Health Reform), the IRS required reporting of the value of “employer sponsored” health coverage on each employee’s 2011, W-2. In notice (2010-69), the IRS has provided interim relief from the reporting requirements of the value of employer sponsored health coverage on employees W-2’s in 2011. Whats interesting is that many employers see this as a pre-cursor to the cost of benefits becoming taxable to employees. Which could be constued as one more step towards single-payor. Please see below, the notice issued. I am assuming this will be brought back For 2012.

W-2 Reporting Relief under PPACA
Interim Relief with Respect to Form W-2 Reporting of the Cost of Coverage of Group Health Insurance Under § 6051(a)(14) Notice 2010-69

This notice provides interim relief to employers with respect to reporting the cost of coverage under an employer-sponsored group health plan on Form W-2, Wage and Tax Statement, pursuant to § 6051(a)(14) of the Code. Specifically, this notice provides that reporting the cost of such coverage will not be mandatory for Forms W-2 issued for 2011. The Treasury Department and the IRS have determined that this relief is appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement.

BACKGROUNDSection 6051(a)(14) was added to the Code by § 9002 of the Patient Protection and Affordable Care Act of 2010, Public Law 111-148, enacted March 23, 2010. Section 6051(a)(14) provides generally that the aggregate cost of applicable employer sponsored overage (as defined in § 4980I(d)(1)) must be reported on Form W-2. Section 6051(a)(14) further provides that, for this purpose, the aggregate cost is to be determined under rules similar to the rules of § 4980B(f)(4), referring to the definition of the “applicable premium” under the rules providing for COBRA continuation coverage. Section 6051(a)(14) is effective for taxable years beginning on or after January 1, 2011.

INTERIM RELIEFPursuant to this notice, the reporting requirement set forth in § 6051(a)(14) is not mandatory for Forms W-2 issued for 2011. Accordingly, an employer will not be treated as failing to meet the requirements of § 6051 for 2011, and will not be subject to any penalties for failure to meet such requirements, merely because it does not report the aggregate cost of employer-sponsored coverage (as defined in § 4980I(d)(1)) on Forms W-2 issued for 2011. The Treasury Department and the IRS anticipate issuing guidance on the reporting requirement set forth in § 6051(a)(14) before the end of this year.

DRAFTING INFORMATIONThe principal author of this notice is Leslie Paul of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) though other Treasury Department and IRS officials participated in its development. For further information on the provisions of this notice, contact Leslie Paul at (202) 622-6080 (not a toll-free number).