HEALTHCARE TAX UPDATE SEPTEMBER 28, 2012

Transcription

1 HEALTHCARE TAX UPDATE SEPTEMBER 28,

2 AGENDA 1. Expiring individual income tax cuts? 2012 Election. 2. Tax provisions of the Affordable Care Act. 3. Schedule H State of New Jersey hospitals and American Hospital Association special project. 4. New IRS Code Section 501(r) hospital requirements. 5. Affordable Care Act timeline. 2

3 EXPIRING FEDERAL TAX PROVISIONS PART ONE 3

4 EXPIRING FEDERAL TAX PROVISIONS Individual Income Tax Rates Starting in 2013, the marginal Federal individual income tax rates for the top two brackets rise from 33% and 35% will revert to the year 2000 rates of 36% and 39.6%, respectively. Dividend Tax Rate Starting in 2013, qualified dividends would no longer be taxed at a rate of 15%; they will revert to being taxed as ordinary income. 4

5 EXPIRING FEDERAL TAX PROVISIONS Capital Gains Tax Rates Starting in 2013, the long term capital gains tax rate will increase from 15% to 20%. Child Tax Credit Starting in 2013, the child tax credit for eligible households will be reduced from $1,000 per child to $500. 5

6 EXPIRING FEDERAL TAX PROVISIONS Dependent Care Tax Credit Starting in 2013, the dollar amount limit for creditable expenses is reduced from $3,000 to $2,400 ($6,000 to $4,800 for two or more children), thereby reducing the credit. Effective January 1, 2013 there are 64 additional Federal tax provisions due to expire. 6

7 EXPIRING FEDERAL TAX PROVISIONS New York Times, August 2, 2012 Average savings per T/P from tax cuts, Taxable income less than $10,000 $335 Taxable income $10,000 - $19,999 $1,448 Taxable income $20,000 - $29,999 $4,302 Taxable income $30,000 - $39,999 $6,127 Taxable income $40,000 - $49,999 $7,040 Taxable income $50,000 - $74,999 $9,839 Taxable income $75,000 - $99,999 $15,009 Taxable income $150,000 - $199,999 $28,894 7

8 EXPIRING FEDERAL TAX PROVISIONS New York Times, August 2, 2012; continued Taxpayers with taxable incomes $19,999 and below comprise approximately 29% of U.S. taxpayers with those whose taxable income is $20,000 and above comprising approximately 65.9% of U.S. taxpayers. Those taxpayers with taxable incomes above $200,000 make up the remaining 5.1%. 8

9 TAX UPDATE & THE PATIENT PROTECTION AND AFFORDABLE CARE ACT PART TWO 9

10 AFFORDABLE CARE ACT PROVISIONS Form W-2 healthcare benefit reporting..9% Surtax. 3.8% tax on unearned income. Small Business Health Care Tax Credit. Changes to FSAs. Medical Device Excise Tax. Health Insurance Premium Tax Credit. 10

11 FORM W-2 HEALTHCARE BENEFIT REPORTING Mandatory for Relief for small employers: Less than 250 Forms W-2 in the prior year. Method of reporting: Form W-2, Box 12, Code DD. Includes employer and employee portions. Three methods of calculation. Penalties for non-reporting: $200 per Form W-2, maximum $3 million. 11

12 MAJOR TAX PROVISIONS A new 0.9% surtax will be added to the 1.45% Hospital Insurance (Medicare) payroll taxes paid by individuals earning more than $200,000 per year ($250,000 for joint filers). Subject to payroll withholding. New IRS Code Section 1411 imposes a 3.8% tax on unearned income of individuals earning more than $200,000 per year ($250,000 for joint filers). Contributions to health care FSA s limited to $2,500 as of 1/1/

13 2014 AND BEYOND Individual mandate. Employer play or pay mandate. State-based health insurance exchanges. Provide refundable and advanceable tax credits to individuals and families. Prohibit all pre-existing condition exclusions. Eliminate all lifetime caps for essential benefits. Reinsurance program. High cost insurance plans. 13

14 INDIVIDUAL MANDATE Penalties: Pay a tax penalty of $695 per year up to a maximum of 3X that amount; $2,085. Flat fee phase-in schedule; $ , $ and $ , or Percentage of taxable income phase-in schedule; 1% , 2% and 2.5%

15 INDIVIDUAL MANDATE Exemptions: Financial hardship, religious objections, incarcerated individuals. lowest cost option exceeds 8% of an individual s income. 15

16 EMPLOYER PLAY OR PAY MANDATE If Employer does not offer coverage Effects Large Employers; those who employ more than 50 full-time employees. Minimum essential coverage. At least one employee enrolled in a Qualified Health Plan. Annual fee equal to $2,000 times the number of employees exceeding thirty. 16

17 EMPLOYER PLAY OR PAY MANDATE If Employer offers coverage: Required to pay annual fee equal to the lesser of: $2,000 times the number of employees exceeding thirty; or $3,000 for each employee receiving a premium tax credit. 17

18 STATE-BASED HEALTH INSURANCE EXCHANGES American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges. Individuals and small businesses with up to 100 employees. Exchanges will have four levels of coverage bronze, silver, gold or platinum. Beginning in 2017, businesses with more than 100 employees may purchase coverage in SHOP Exchange. 18

19 REFUNDABLE AND ADVANCEABLE PREMIUM CREDITS Eligible individuals and families with incomes between % of Federal Poverty Level ( FPL ) to purchase insurance through Exchanges. FPL in 2011 for individual was $43,650; family of four was $89,400. Premium credits provided on a monthly basis and are on sliding scale. 19

20 REFUNDABLE AND ADVANCEABLE PREMIUM CREDITS Premium contributions are limited to the following percentages of income for specified income levels: % FPL: 2% of income % FPL: 3-4% of income % FPL: 4-6.3% of income % FPL: % of income % FPL: % of income % FPL: 9.5% of income 20

21 HIGH COST INSURANCE PLANS Effective for tax years beginning after December 31, Excise tax on insurers of employer-sponsored health plans with aggregate values exceeding $10,200 for individual coverage and $27,500 for family coverage. 40% excise tax on amount by which annual coverage exceeds threshold amounts. 21

22 SCHEDULE H STATE OF NEW JERSEY HOSPITALS AHA SPECIAL PROJECT PART THREE 22

23 FORM 990 SCHEDULE H Schedule H background. New Jersey hospitals benchmarking. NJ Senate, S-782, NJ For-Profit Hospital Information Disclosure Agreement. American Hospital Association Schedule H project. 1. Community benefit IRS definition. 2. Total benefits to the community. 23

24 SCHEDULE H, PART I, COMMUNITY BENEFIT Community Benefit 1. AHA versus CHA model (excludes bad debt at cost and Medicare shortfall). 2. Schedule H, Part III reports bad debt and Medicare shortfall. Also asks for why you feel bad debt and Medicare shortfall should be treated as community benefit. 3. Costs not charges. 4. Senate Finance Committee 5% Test. 24

25 SCHEDULE H, PART I, COMMUNITY BENEFIT Categories of Community Benefit a. Financial Assistance at Cost. b. Medicaid shortfall. c. Community Health Improvement Services and Community Benefit Operations. d. Health Professions Education. e. Subsidized Health Services. f. Research. g. Cash and in-kind contributions. 25

26 SCHEDULE H, PARTS II AND III Form 990, Schedule H, Part II a) Community Building Activities. Form 990, Schedule H, Part III a) Bad debt expense. b) Estimated amount of bad debt attributable to patients eligible under the organization s financial assistance policy. c) Medicare Shortfall. 26

27 2010 AND 2009 NJ FORMS 990 IRS COMMUNITY BENEFIT 2010 NJ hospital community benefit percentage average 7.66% (omits Hoboken which did not file Schedule H) 2009 NJ hospital community benefit percentage average 7.59% (omits Hoboken which did not file Schedule H) 27

28 2010 NJ FORMS 990 IRS COMMUNITY BENEFIT THE TOP 5 1. Christ Hospital 27.54% 2. Palisades Medical Center 12.22% 3. Jersey City Medical Center 12.17% 4. Monmouth Medical Center 11.64% 5. Christian Health Care Center 11.48% 28

29 2010 NJ FORMS 990 IRS COMMUNITY BENEFIT THE BOTTOM 5 1. Valley Hospital 2.21% 2. St. Mary s Hospital (Passaic) 3.57% 3. Hackettstown Regional Medical Center 4.02% 4. Trinitas Regional Medical Center 4.12% 5. St. Francis Medical Center (Trenton) 4.46% 29

30 2010 AND 2009 NJ FORMS 990 IRS COMMUNITY BENEFIT Atlantic Health 7.08% and 7.20% AtlantiCare Regional Medical Ctr 9.91% and 8.95% Cooper Health System 9.80% and 9.41% Hackensack University Medical Ctr 7.06% and 7.20% Meridian Health 9.48% and 8.95% Robert Wood Johnson Univ. Hosp. 8.65% and 8.57% 30

31 AMERICAN HOSPITAL ASSOCIATION AHA project, 2009 Form 990, Schedule H, Part I; IRS community benefit. a) Small hospitals; 7.3% b) Medium hospitals; 8.0% c) Large hospitals; 9.8% d) Hospital systems; 9.3% e) Overall; 8.4% 31

32 AHA 2009 SCHEDULE H PROJECT 1. Based upon first year filings of Form 990, Schedule H. 2. AHA released in February, 2012; 3. Results based upon 571 Schedule H s; 477 individual hospitals and 94 hospital systems. The 94 hospital systems are estimated to represent 400 individual hospitals. 4. The 900 hospitals in the AHA project represent approx. 30% of the 2,900 NFP U.S. hospitals. 32

33 AHA 2009 SCHEDULE H PROJECT 1. AHA publicized the average of the 571 participating hospitals and hospital systems. 2. Total benefits to the community of 11.3%. a) Total charity care, means tested govt programs and other benefits: 8.4% b) Community building activities: 0.1% c) Bad debt expense attributable to charity care: 0.4% d) Medicare shortfall: 2.4% 33

34 IRS CODE SECTION 501(R) HOSPITAL REQUIREMENTS PART FOUR 34

35 HOSPITAL REQUIREMENTS - AFFORDABLE CARE ACT 1. Code Section 501(r)(3); community health needs assessment ( CHNA ) and written implementation strategy 2013 Forms Code Section 501(r)(4); Financial Assistance Policy 2011 Forms Code Section 501(r)(5); Limitation on Patient Charges 2011 Forms Code Section 501(r)(6); Limitation on Collection Efforts 2011 Forms

36 IRS NOTICE , JULY OF 2011 Requirements effective for tax years beginning after March 23, Two written reports; hospital facility by facility basis 1. A CHNA (make widely available). 2. Written implementation strategy (adopt and attach to the Form 990). Treasury and IRS to issue proposed regulations. 36

37 IRS ISSUES PROPOSED REGULATIONS Code Section 501(r)(4); (5) and (6); respectively, released on June 26, 2012 and public comments are due to IRS by September 24, The proposed regulations are ninety-four (94) pages in length. Does not address CHNA requirements. Effective for tax year beginning after publication of temporary or final regulations in the Federal Register. IRS estimated hours to comply annually:

38 IRS ISSUES PROPOSED REGULATIONS Key terms 1. Financial Assistance Policy (FAP). 2. Amounts generally billed (AGB). Look back method. Prospective method. 3. Extraordinary collection actions (ECA). Notification period. Application period. 38

39 PUBLIC COMMENTS AHA submitted letter dated August 23, 2012 Estimated hours to comply annually: 250-2,000 HFMA submitted letter dated August 27, 2012 Estimated hours to comply annually: 120 2,700 39

40 AFFORDABLE CARE ACT TIMELINE PART FIVE 40

41 PPACA TIMELINE Early retiree re-insurance program Non-discrimination rules Extension of dependent coverage to age 26 No lifetime limits No unreasonable annual limits Free preventive care No pre-existing condition exclusion for those under age 19 Uniform benefit plan documents No rescissions Holding insurance companies accountable for unreasonable rate hikes Small business health insurance tax credits Cap on certain insurers' tax deductions for compensation Employee notice on exchange options Linking payment to quality outcomes Encouraging integrated health systems Mandatory Form W2 reporting Coverage expansion Employer "play or pay" mandate Individual mandate Exchanges begin No annual limits No excessive wait periods Small business tax credit (second phase) HSA, FSA and HRA restriction on over-the counter drugs Increase to 20% penalty for HSA non-qualified distributions Bringing down healthcare premiums Addressing overpayments to big insurance companies 2011 FSA contribution limits Elimination of deduction for Medicare Part D drug subsidy Medical expense deduction floor increases to 10% Increase in employee Medicare payroll tax by 0.9% on earned income Increase in additional individual hospital insurance tax by 3.8% on unearned income 40% excise tax on high-cost plans State may permit large employers to purchase through exchange

42 Scott J. Mariani, JD, Partner Karen L. Henderson, Tax Manager WithumSmith+Brown, PC 465 South Street, Suite 200 Morristown, NJ