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The Patient Protection and Affordable Care Act (PPACA) is a federal statute that was signed into United States law by President Barack Obama on March 23, 2010. This Act and the Health Care and Education Reconciliation Act of 2010 (signed into law on March 30, 2010) made up the health care reform of 2010. The laws focus on reform of the private health insurance market, provide better coverage for those with pre-existing conditions, improve prescription drug coverage in Medicare and extend the life of the Medicare Trust fund by at least 12 years.
The Act's provisions are intended to be funded by a variety of taxes and offsets. Major sources of new revenue include a much-broadened Medicare tax on incomes over $200,000 and $250,000, for individual and joint filers respectively, an annual fee on insurance providers, and a 40% tax on "Cadillac" insurance policies. There are also taxes on pharmaceuticals, high-cost diagnostic equipment, and a federal sales tax on indoor tanning services. Offsets are from intended cost savings such as improved fairness in the Medicare Advantage program relative to traditional Medicare.
Total new tax revenue from the Act will amount to $409.2 billion over the next 10 years. $78 billion will be realized before the end of fiscal 2014. Summary of revenue sources:
* Broaden Medicare tax base for high-income taxpayers: $210.2 billion
* Annual fee on health insurance providers: $60 billion
* 40% excise tax on health coverage in excess of $10,200/$27,500: $32 billion
* Impose annual fee on manufacturers and importers of branded drugs: $27 billion
* Impose 2.3% excise tax on manufacturers and importers of certain medical devices: $20 billion
* Require information reporting on payments to corporations: $17.1 billion
* Raise 7.5% Adjusted Gross Income floor on medical expenses deduction to 10%: 15.2 billion
* Limit health flexible spending arrangements in cafeteria plans: $13 billion
* All other revenue sources: $14.9 billion
Effective by January 1, 2012
* Employers must disclose the value of the benefits they provided beginning in 2012 for each employee's health insurance coverage on the employees' annual Form W-2's. This requirement was originally to be effective January 1, 2011 but was postponed by IRS Notice 2010-69 on October 23, 2010.
* New tax reporting changes come into effect which aims to prevent tax evasion by corporations and individuals. The provision is expected to raise $17 billion over 10 years. Under the existing law, businesses have to notify the IRS on 1099 form of certain payments to individuals for certain services or property over a reporting threshold of $600. But from December 31, 2011 the requirements will be changed so that payments to corporations and individuals must also be reported. There are a number of exceptions: personal payments, payments for merchandise, telephone, freight, storage, and payments of rent to real estate agents are exempt from reporting. The amendments made by this section of the Act (section 9006) shall apply to payments made by businesses after December 31, 2011.
Effective by January 1, 2013
* Self-employment and wages of individuals above $200,000 annually (or of families above $250,000 annually) will be subject to an additional tax of 0.5%.
Effective by January 1, 2014
* Insurers are prohibited from discriminating against or charging higher rates for any individuals based on pre-existing medical conditions.
* Impose an annual penalty of $95, or up to 1% of income, whichever is greater, on individuals who do not secure insurance; this will rise to $695, or 2.5% of income, by 2016. This is an individual limit; families have a limit of $2,085. Exemptions to the fine in cases of financial hardship or religious beliefs are permitted.
* Insurers are prohibited from establishing annual spending caps.
* Expand Medicaid eligibility; individuals with income up to 133% of the poverty line qualify for coverage, including adults without dependent children.
* Two years of tax credits will be offered to qualified small businesses. In order to receive the full benefit of a 50% premium subsidy, the small business must have an average payroll per full time equivalent ("FTE") employee, excluding the owner of the business, of less than $25,000 and have fewer than 11 FTEs. The subsidy is reduced by 6.7% per additional employee and 4% per additional $1,000 of average compensation. As an example, a 16 FTE firm with a $35,000 average salary would be entitled to a 10% premium subsidy.
* Impose a $2,000 per employee tax penalty on employers with more than 50 employees who do not offer health insurance to their full-time workers (as amended by the reconciliation bill)