Health care reform passed in 2010 brought a number of changes to the health insurance landscape in recent years. Since 2014, all U.S. citizens and legal residents are required to obtain health care coverage or pay a penalty. Those who already have insurance, individually or through their employers, will not need to make any changes, provided the coverage meets certain minimal requirements.
Tax penalties for failure to maintain coverage will be phased in over time. In 2017 and beyond, the penalty for an adult will be a flat fee or 2.5% of income, whichever is greater, provided the amount does not exceed the cost of a basic health care plan. A family’s total penalty generally cannot exceed 300% of the adult flat-dollar penalty or the cost of a basic health care plan and will be indexed for inflation for following years. Under certain circumstances, exemptions to the penalty will be granted.
To assist those who cannot afford the full cost of premiums, the Medicaid program will be expanded to enroll uninsured individuals with incomes below 133% of the Federal poverty level (FPL). In 2017, subsidies are provided on a sliding scale to individuals with lower to mid-level incomes who do not qualify for Medicaid. Families and individuals with incomes up to 400% of the FPL may be eligible for a premium assistance tax credit to help them purchase basic coverage through an exchange.
To help raise revenue to cover the cost of subsidies, the law broadens the Medicare tax base for higher-income taxpayers. This includes an additional Hospital Insurance tax rate of 0.9% on earned income in excess of $200,000 for individuals and $250,000 for married couples filing jointly, as well as a 3.8% unearned income Medicare contributions tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the same threshold amounts. Some trusts and estates will also be liable for this 3.8% tax.
Starting for tax years beginning after December 31, 2019, a 40% nondeductible excise tax will be imposed on health insurance providers or plan administrators for any “Cadillac” health insurance plan with annual premiums in excess of $10,200 for individual and $27,500 for family coverage, with both amounts adjusted for inflation and higher thresholds for employees in certain high-risk professions and non-Medicare retirees age 55 and older. Insurance providers and plan administrators are permitted to pass along the excise tax to consumers through higher premiums.
The Protecting Americans from Tax Hikes Act of 2015 (PATH) put a one-year moratorium on the Patient Protection and Affordable Care Act annual fee on health insurance providers, which applies to any covered entity engaged in the business of providing health insurance for U.S. health risks.