Senate Democrats Release Healthcare Reform Legislation

Volume 2009 / Issue 18

November 20, 2009

Late in the evening of November 18, the Senate Democratic Leadership unveiled its healthcare reform package, the Patient Protection and Affordable Care Act. The cost of the bill is $849 billion over 10 years, is projected to cut the deficit by $127 billion over 10 years and by $650 billion in the second decade, and is said to cover 94% of eligible Americans.

It should be noted that the bill achieves its budget and deficit goals through manipulations that immediately impose the revenue raising provisions discussed below, but defer the costs and benefits for several years, roughly ten years of tax increases and six years of costs.

The Senate bill pays for the cost of health reform with the following revenue raising provisions:

An additional 0.5% hospital insurance (HI) tax would apply to wages in excess of $200,000 ($250,000 for joint filers), effective for tax years beginning after 2012.
A 40% nondeductible excise tax would apply to health coverage in excess of $8,500 (singles)/$23,000 (families), to be indexed for inflation, with increased thresholds for over age 55 retirees and those in certain high-risk professions (e.g., firefighters, construction and mining workers). The tax would apply for tax years beginning after 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. Transition relief would apply for health insurance plans maintained in the 17 states in which health care was least affordable.
Employers would be required to report the value of health benefits on employees' Form-W-2s, effective for tax years beginning after 2010.
Health insurance issuers would have to pay a fee with respect to each specified health insurance policy (i.e., any accident or health insurance policy, including a policy under a group health plan, issued with respect to individuals residing in U.S.). For each policy year ending after Sept. 30, 2012, the fee would equal the product of $2 ($1 for policy years ending during fiscal year 2013) multiplied by the average number of lives covered under the policy. Similarly, sponsors of self-insured health plans for each plan year ending after Sept. 30, 2012, would have to pay a fee equal to $2 ($1 in the case of plan years ending during fiscal year 2013) multiplied by the average number of lives covered under the plan. These fees would not apply for plan years ending after Sept. 30, 2019.
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 insulin or doctor prescribed medicine) could not be reimbursed through a health FSA or HRA. In addition, the cost of over-the-counter medicines (other than insulin or doctor prescribed medicine) 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 2010.
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, 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 floor beneath itemized medical expense deductions would be raised from 7.5% of adjusted gross income (AGI) to 10%, 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 hike to 10% of AGI would expire at the end of 2016.
A 5% excise tax would apply to cosmetic surgery and similar procedures performed after 2009.
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.
An annual fee would be levied on manufacturers and importers of branded drugs, and on manufacturers and importers of certain medical devices. The fees would apply for calendar years beginning after 2009, and the fees would be allocated based on market share of the branded drug sales or medical device sales for calendar years beginning after 2008.

		Skip Navigation Search:
	Home People Dennis J. Szymkowiak, CPA Daniel J. Suhr, CPA Todd M. Scherrer, CPA Diane M. Wiktorowski, CPA Steven G. Austin, CPA Services Structural and Transactional Tax Planning Tax Compliance Services Accounting for Income Taxes High Net-Worth Family Consulting Executive Tax Services Accounting and Auditing Services Corporate Governance Services Mergers and Acquisitions (M&A) Due Diligence Services Financial Reporting Compliance Services Careers News Tax Developments for 4th Quarter 2011 Wage Theft Prevention Act Tax Developments for 3rd Quarter 2011 Available Tax Benefits for Fixed Assets Acquired by December 31, 2011 Updating Beneficiary Designations IRS Increases Mileage Rates in July 2011 Foreign Financial Account Reporting Tax Law Changes in the 4th Quarter 2010 Estate and Gift Tax Changes Overview of the tax provisions in the 2010 Tax Relief Act 45 more items... Location Contact Us Activities Habitat for Humanity April 2009 August 2008 Catamaran Ride Henzler Completes Book Drive	Home > News > Senate Democrats Release Healthcare Reform Legislation Senate Democrats Release Healthcare Reform Legislation Volume 2009 / Issue 18 November 20, 2009 Late in the evening of November 18, the Senate Democratic Leadership unveiled its healthcare reform package, the Patient Protection and Affordable Care Act. The cost of the bill is $849 billion over 10 years, is projected to cut the deficit by $127 billion over 10 years and by $650 billion in the second decade, and is said to cover 94% of eligible Americans. It should be noted that the bill achieves its budget and deficit goals through manipulations that immediately impose the revenue raising provisions discussed below, but defer the costs and benefits for several years, roughly ten years of tax increases and six years of costs. The Senate bill pays for the cost of health reform with the following revenue raising provisions: An additional 0.5% hospital insurance (HI) tax would apply to wages in excess of $200,000 ($250,000 for joint filers), effective for tax years beginning after 2012. A 40% nondeductible excise tax would apply to health coverage in excess of $8,500 (singles)/$23,000 (families), to be indexed for inflation, with increased thresholds for over age 55 retirees and those in certain high-risk professions (e.g., firefighters, construction and mining workers). The tax would apply for tax years beginning after 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. Transition relief would apply for health insurance plans maintained in the 17 states in which health care was least affordable. Employers would be required to report the value of health benefits on employees' Form-W-2s, effective for tax years beginning after 2010. Health insurance issuers would have to pay a fee with respect to each specified health insurance policy (i.e., any accident or health insurance policy, including a policy under a group health plan, issued with respect to individuals residing in U.S.). For each policy year ending after Sept. 30, 2012, the fee would equal the product of $2 ($1 for policy years ending during fiscal year 2013) multiplied by the average number of lives covered under the policy. Similarly, sponsors of self-insured health plans for each plan year ending after Sept. 30, 2012, would have to pay a fee equal to $2 ($1 in the case of plan years ending during fiscal year 2013) multiplied by the average number of lives covered under the plan. These fees would not apply for plan years ending after Sept. 30, 2019. 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 insulin or doctor prescribed medicine) could not be reimbursed through a health FSA or HRA. In addition, the cost of over-the-counter medicines (other than insulin or doctor prescribed medicine) 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 2010. 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, 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 floor beneath itemized medical expense deductions would be raised from 7.5% of adjusted gross income (AGI) to 10%, 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 hike to 10% of AGI would expire at the end of 2016. A 5% excise tax would apply to cosmetic surgery and similar procedures performed after 2009. 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. An annual fee would be levied on manufacturers and importers of branded drugs, and on manufacturers and importers of certain medical devices. The fees would apply for calendar years beginning after 2009, and the fees would be allocated based on market share of the branded drug sales or medical device sales for calendar years beginning after 2008.
333 International Drive \| Suite A2 \| Williamsville, NY 14221 \| ph 716-626-2626 \| fax 716-626-4880 \| info@szycpa.com \| Site Map