Health Care Reform

On March 30, President Obama signed into law H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act), thus completing a massive overhaul of the U.S. health care system affecting nearly all taxpayers, many employers, and many elements of the health care industry. Want a summary of the bill?

The Reconciliation Act modifies legislation signed into law on March 23 that contains the bulk of the health reform law, H.R. 3590, the Patient Protection and Affordable Care Act (Health Care Act). However, the Reconciliation Act also includes new provisions that weren’t part of the earlier legislation, such as codification of economic substance, elimination of a tax credit for “black liquor” and expanded dependent coverage in employer health plans.

The centerpiece in the new health reform law—consisting of the Health Care Act and the Reconciliation Act—is the mandate for most residents of the U.S. to obtain health insurance. This mandate carries with it a host of new tax rules, such as new penalties for individuals who choose to remain uninsured, tax credits and other sweeteners for participating in new insurance coverages, new penalties for larger employers that don’t provide insurance (or provide coverage deemed inadequate or unaffordable), plus a voucher system for certain lower income employees who choose not to be covered by the company health plan. Additionally, the definition of who is a dependent for employer health plan (and other purposes) has been expanded.

The health reform law pays for its cost in a number of ways, including taxes, penalties and tougher rules for health care related exclusions and deductions. These include a surtax on “Cadillac” employer health plans, higher HI taxes on wages, an “unearned income Medicare contribution” surtax, tougher limits on medical expense deductions, and a new limit on health FSA contributions under cafeteria plans. It also imposes a number of industry specific revenue raisers and toughened rules, such as a new executive compensation deduction limit for insurance providers, and annual fees for pharmaceutical companies, manufacturers and importers of medical devices, and health insurance providers.

The health reform law also creates brand-new tax breaks, such as a “simple” cafeteria plan option for small businesses, liberalized adoption credit and adoption assistance rules, a new tax credit to stimulate new therapies, and a new exclusion for certain health professionals.

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