Preparing for health care reform; the time to plan is now

If you’ve been paying attention to the news headlines over the past couple of years, you have no doubt been inundated with seemingly endless talk of health care reform. The topic has been the subject of heated debate on Capitol Hill and around office water coolers alike. With so much information to process, and so many conflicting viewpoints, it can be difficult to make sense of it all.

Two things are very clear. First, the sweeping changes brought on over the next four to eight years by the Patient Protection and Affordable Care Act of 2010 and its amendments will affect each of us to some degree. Second, those who do not take proper measures to prepare for the changes could find themselves in an unexpected and undesirable tax position.

Though a thorough discussion of the act would require volumes of analysis and explanation, there are a few key points that exemplify the types of changes that are at hand.

• Beginning in 2013, the Medicare wage tax rate will increase by 0.9 percent for high-wage earners. Additionally, a new 3.8 percent tax on investment income, including the distribution of annuities, for those earning more than $200,000 (individual)/$250,000 (married couple) will be imposed. Combined, the increased taxes are expected to offset the cost of health care reform measures.

• Beginning in 2014, a penalty will be imposed on all individuals lacking government approved health care coverage. Those without proper coverage will be subject to a tax that is the greater of $95 or 1 percent of the individual’s adjusted gross income. In 2015, the tax increases to the greater of $325 or 2 percent of AGI, and in 2016 it increases to 2.5 percent or $695 per person. Families will be subject to up to three times the penalty amount for individuals, or $2,085. In short, approved coverage is mandatory, and the penalty for non-compliance will be significant to most.

• Also beginning in 2014, employers with an average of 50 or more full-time equivalent employees could be subject to penalties of up to $2,000 per employee for failing to offer health coverage that meets minimum essential coverage requirements. There are also potential penalties for offering coverage that is deemed “unaffordable” to an employee who receives a tax credit and purchases their insurance through the exchange. The formulas for determining non-compliance and calculating penalties are complex, which emphasizes the need to actively engage in planning strategies well in advance.

The health care reform measures that will be placed into action over the next several years will be unfamiliar to most. They collectively represent a significant change from that which we have been subject to in the past. If there is one thing to take away from this column, it is that businesses and individuals should be proactive in incorporating the new measures into tax planning activities so as to avoid any unwelcome surprises. It would be prudent to meet with your health care consultant, CPA and/or financial adviser to discuss your particular situation.

Lisa Moreno-Haramboure is a partner at MPC Wealth Management, where she heads up the executive and employee benefit practice. Based in downtown Orlando, MPC has been serving the Central Florida market for over 50 years. Visit www.mpc-wm.com