Each year since 2010 portions of Obamacare have been implemented. Twenty-thirteen is no exception as there are several revenue provisions effective January 2013 that will impact the wallets of most Americans by direct taxes, reduced tax benefits or indirect additional health care expenses.
Following is a summary of those changes:
Itemized Deductions for Medical Expenses
Increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income; waives the increase for individuals age 65 and older for tax years 2013 through 2016. Increased federal revenue over ten years: $15.2 billion
Admittedly, this change should impact relatively few Americans initially but if you think about it, the change does the most harm to middle-income people. Health care expenses are not income sensitive whereas increasing the deduction threshold by 2.5% certainly is. In addition, with the growth of high deductible health plans more and more Americans may have use for the deduction.
Flexible Spending Account Limits
Limits contributions to a flexible spending account for medical expenses to $2,500 per year, increased annually by the cost of living adjustment. Increased federal revenue over ten years: $13 billion
This change shifts more costs to average Americans who use flexible spending accounts for out-of-pocket medical expenses. The most harmful impact will be on people who use FSAs to help pay for health care services that are typically limited or ineligible for basic coverage including prescription glasses, dental care and orthodontics for children.
Tax Increases
Increases the Medicare Part A (hospital insurance) tax rate on wages by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly
Imposes a 3.8% assessment on unearned income for higher-income taxpayers.
Increased federal revenue over ten years: $ 210.2 billion
These direct tax increases aimed at higher income Americans are among the largest revenue raisers in the Affordable Care Act. Unearned income includes interest, dividends, and capital gains, including the taxable gain from the sale of a home (generally only the profit in excess of $500,000).
Employer Retiree Coverage Subsidy
Eliminates the tax-deduction for employers who receive Medicare Part D retiree drug subsidy payments. Increased federal revenue over ten years: $ 4.5 billion
The tax-free status of the drug subsidy was originally intended to encourage employers that provided prescription benefits to their retirees to continue to do so upon the enactment of Part D under Medicare and thus to avoid shifting costs to the government. This change under Obamacare does the opposite, it virtually assures that employers will drop or change their retiree coverage thereby shifting prescription drug costs to Medicare. Many employers are switching to self-funded Medicare Part D plans known as Employer Group Waiver Plans. This move saves employers money by avoiding the new tax, but also reduces their accounting liability because now their plan is eligible for direct Medicare subsidies for each beneficiary just like any other commercial Part D plan. For some employers this is an interim step on the way to eliminating prescription coverage altogether. By moving to a private Part D plan employers subject their higher income retirees to the income based Medicare premiums for their prescription coverage in addition to what the employer may charge.
Tax on Medical Devices
Imposes an excise tax of 2.3% on the sale of any taxable medical devices. Increased federal revenue over ten years: $ 20 billion
This is a controversial tax. Critics say it will cost jobs and stymie innovation and the development of new medical devices and there are some signs that is true. There is a small but growing bi-partisan movement in Congress to repeal this tax. What makes it unique and difficult for companies to deal with is that is a tax not on net income, but on sales.
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