2010 Patient Protection & Affordable Care Act:

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1 2010 Patient Protection & Affordable Care Act: What s this got to do with my 2014 federal income tax return? Presented By: David N. Stonehill, Attorney-at-Law Tax Advisor and Certified Divorce Financial Analyst david@davidstonehill.com

2 aka Obamacare or the ACA On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law The law puts in place comprehensive health insurance reforms that have rolled out over the last four years, with most changes taking place in the 2014 tax reporting year.

3 Key Provisions A requirement that most individuals have health insurance beginning in 2014 ( Individual Mandate ); Medicaid expansion to 133% of the federal poverty level ($14,000 for an individual and $29,000 for a family of four in 2012) for individuals under the age of 65; Creation of health insurance exchanges through which individuals who do not have access to public coverage or affordable employer coverage will be able to purchase insurance with premium and cost-sharing credits available to some people to make coverage more affordable; New regulations on all health plans that will prevent health insurers from denying coverage to people for any reason, including health status, and from charging higher premiums based on health status and gender; Penalties to employers that do not offer affordable coverage to employees, with exceptions for small employers.

4 U.S. Supreme Court Evaluates Constitutionality As a result of the enactment of this law, a number of parties filed suit in federal courts across the country, claiming that the law was unconstitutional for various reasons. On November 14, 2011, the Supreme Court granted certiorari to portions of three cross-appeals of the Eleventh Circuit's opinion: one by the states (Florida v. U.S. Dept. of Health and Human Svcs.), one by the federal government (U.S. Dept. of Health and Human Svcs. v. Florida); and one by National Federation of Independent Business (Nat'l Fed. of Independent Bus. v. Sebelius). These separate cases were merged into a single case titled National Federation of Independent Business v. Sebelius.

5 U.S. Supreme Court Evaluates Constitutionality "We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation's elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions." - Chief Justice John Roberts

6 U.S. Supreme Court Upholds Constitutionality On June 28, 2012, the Supreme Court issued a landmark decision to uphold the constitutionality of: The Individual Mandate In a 5 to 4 ruling, the Court held that the mandate is unconstitutional under the commerce clause, but is constitutional under Congress's taxing power (enter IRS!) The Medicaid Expansion but with a significant limitation: The Court held that it is unconstitutional for the government to cut off pre-existing Medicaid funding for states that elect not to participate in Medicaid Expansion States that opt out will not qualify for enhanced Medicaid funding that the Act provides for All other requirements of the Act remain untouched and will go into effect provided there are no other legislative changes or a change in the White House

7 Summary of Changes effective in 2014 State health insurance exchanges for small businesses and individuals open Most people will be required to obtain health insurance coverage or pay a penalty if they fail to do so Healthcare tax credits become available to help people with incomes between 100% to 400% of poverty line purchase coverage Second phase of small business tax credit goes into effect--up to 50% of the employer s contribution to provide health insurance for employees and up to a 35% credit for small non-profit organizations Medicaid expansion to include those who earn less than 133% of the poverty level (approximately $14,000 for an individual and $29,000 for a family of four) No pre-existing condition exclusions

8 Individual Mandate U.S. citizens and legal residents will be required to have minimum essential coverage for themselves and their dependents Minimum essential coverage is defined as: Coverage under certain government-sponsored plans Employer-sponsored plans, with respect to any employee Plans in the individual market Grandfathered health plans; and Any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS Secretary Minimum essential coverage does not include health insurance coverage consisting of excepted benefits, such as dental-only coverage

9 Individual Mandate Penalty Provisions: Those without coverage will pay a tax penalty. The penalty will be phased-in according to the following schedule: 2014: $95 per individual ($47.50 per child) or 1 percent of household income over the filing threshold 2015: $325 per individual ($ per child) or 2 percent of household income over the filing threshold, and 2016: $695 per individual ($ per child) up to a maximum of three times that amount ($2,085) per family or 2.5% of their household income 2017 and beyond: the penalty will be increased annually based on cost-of-living adjustment

10 Individual Mandate Penalty Examples: Flat dollar amount for individuals: $95 in 2014; $325 in 2015; and $695 in 2016; increases indexed to inflation after that, subject to a cap. Example: An uninsured family of two parents and one child under 18 (not exempt from the mandate) would have a flat dollar penalty of $1,738 in ($695 + $695 + $348) Percentage of individual s taxable income: fixed percentage of household income in excess of tax filing threshold 1% in 2014; 2% in 2015; 2.5% in Example: An uninsured (non-exempt) individual with household income of $50,000 would pay 1% of the difference between $50,000 and the tax threshold (let s say $10,000 for an individual in 2014), or roughly $400. Because $400 is greater than $95, this individual would have to pay $400.

11 Individual Mandate Exemptions: religious objections American Indians those with coverage gap of less than three months undocumented immigrants incarcerated individuals financial hardship (those for whom the lowest cost plan option exceeds 8% of an individual s income) those with incomes below the tax filing threshold