We usually defer the dissemination of proposed legislation until passed by Congress and signed by the President. We’re getting lots of questions about what Congress is considering in its proposed Health Reform Bill, so here are a few key highlights coming out of the Senate Finance Committee which passed earlier this week:
- Starting in July 2013, the bill would establish a requirement for U.S. legal residents to obtain insurance and would in many cases impose a financial penalty on people who don’t do so.
- A 40% nondeductible excise tax would be levied on health coverage in excess of $8,000/$21,000 (indexed for inflation), effective for tax years beginning after 2012. Increased thresholds would apply for over age 55 retirees and certain high-risk professions (e.g., firefighters, construction and mining workers), and a higher threshold would apply for health insurance plans maintained in the 17 states in which health care was least affordable for the year ended Dec. 31, 2012. For employees, the employer would aggregate the coverage subject to the limit and issue an information return for insurers indicating the amount subject to the excise tax. The excise tax would be levied at the insurer level.
- Employers would be required to report the value of health benefits on employees’ Form-W-2s, effective for tax years beginning after 2009. For purposes of employer provided health coverage (including health reimbursement accounts (HRAs) and health flexible savings accounts (FSAs), HSAs, and Archer medical savings accounts (MSAs)), the definition of medicine expenses deductible as a medical expense would generally be conformed to the definition for purposes of the itemized deduction for medical expenses. But this change would not apply to doctor prescribed over-the-counter medicine. Thus, the cost of over-the-counter medicine (other than doctor prescribed) could not be reimbursed through a health FSA or HRA. In addition, the cost of over-the-counter medicines (other than doctor prescribed) could not be reimbursed on a tax-free basis through an HSA or Archer MSA. These changes would be effective for tax years beginning after 2009.
- The penalty for nonqualified HSA distributions would be increased from 10% to 20%, effective for disbursements made during tax years beginning after 2010.
- Allowable contributions to health FSAs in cafeteria plans would be capped at $2,500, effective for tax years beginning after 2010.
- Effective for tax years beginning after the enactment date, Code Sec. 501(c)(3) hospitals would be subject to new requirements, e.g., a community health needs assessment, promulgation and dissemination of a written financial assistance policy, and new reporting and disclosure rules.
- Effective for payments made after 2011, the bill would modify the general information reporting requirement by eliminating the exception for payments to corporations. The class of payments with respect to which reporting is required would be clarified to include gross proceeds for both property and services.
- The floor beneath itemized medical expense deductions would be raised from 7.5% of adjusted gross income (AGI) to 10%, effective for effective for tax years beginning after 2012. The AGI floor for individuals age 65 and older (and their spouses) would remain unchanged at 7.5%.
- The deduction for expenses allocable to Medicare Part D subsidy would be eliminated, effective for tax years beginning after 2010. A $500,000 deduction limit would apply to the remuneration of officers, employees, directors, and service providers of covered health insurance providers. This limit would be effective for remuneration paid in tax years beginning after 2012 with respect to services performed after 2009.
- For tax years beginning after 2010, the bill would provide for a safe harbor from the nondiscrimination requirements for cafeteria plans for an eligible small employer. The safe harbor would also apply to the nondiscrimination requirements for specified qualified benefits offered under the cafeteria plan, including group term life insurance, coverage under a self insured group health plan, and benefits under a dependent care assistance program. The safe harbor would require that the cafeteria plan satisfy minimum eligibility and participation requirements and minimum flex-credit contribution requirements.
- The bill would create a temporary tax credit, subject to an overall cap of $1 billion, to encourage investments in new therapies to prevent, diagnose, and treat chronic diseases, effective for expenditures paid or incurred after 2008, in tax years beginning after 2008. The credit would sunset at the end of 2010.