7 Changes To Healthcare In 2013

(Record Herald) It took Congress only 2,700 pages to write the Patient Protection and Affordable Care Act, also known as ObamaCare. But bureaucrats have generated 13,000 pages in new regulations for its implementation. Several new ObamaCare provisions take effect in 2013. Here are seven healthcare changes you should be aware of.

7 Healthcare Changes in 2013

1. $2,500 Cap on Medical Flexible Spending Accounts (FSA’s)

Millions of Americans pay for out-of-pocket healthcare expenses like co-pays, deductibles, contact lenses, children’s braces, and prescriptions with pre-tax dollars, through salary reduction contributions made to their tax-advantaged Flexible Spending Account (FSA).

New for 2013, the IRS is capping the maximum amount of money an employee can contribute to their FSA for medical expenses at $2,500 per year. This amount will be increased annually by the cost of living adjustment. Before ObamaCare, the law did not set a cap for Flexible Spending Accounts, though employers instituted their own caps.

This medical FSA limit is on an employee-by-employee basis, so if a husband and wife both work for employers that offer them, they are both eligible to make salary reduction contributions up to $2,500 each. And if an individual works for two unrelated employers and qualifies for an FSA at both employers, they are eligible to contribute up to $2,500 to an FSA from both employers. This is expected to generate $13 billion in revenue over the next 10 years to help pay for ObamaCare.

Who will be affected most by the medical FSA cap?

  • Families with high out of pocket expenses – Large families and families with high out of pocket medical and dental expenses will especially feel this cap. One of the most common things families pay for out of their FSA is braces for their children’s teeth. At an average cost of $5,500 to $7,000 per child, their $2,500 FSA will get used up pretty quickly.
  • Families with special needs children – Parents of special needs children can use their medical FSA to pay the tuition costs of a special education program for their kids. Special needs tuition can cost up to $14,000 per child per year, which means that special needs parents will be paying more out of pocket for their children’s education.

2. New Medicare Taxes for High Earners

Two new Medicare-related taxes, created to help fund ObamaCare, will affect “the wealthy” – those individuals earning over $200,000 or couples (filing jointly) earning over $250,000.

These high earners will see their Medicare payroll tax rate increase from 1.45% to 2.35% starting on January 1, 2013. They’ll also pay a new 3.8% Medicare tax on unearned income, including investments, interest, dividends, annuities, rent, royalties, certain capital gains and inactive businesses.

3. Medical Device Excise Tax

ObamaCare will impose a new 2.3% excise tax on the sale of certain medical devices by the manufacturer or importer of the device. This tax is expected to generate $30 billion in revenue over 10 years to help fund ObamaCare.

In one sense, individual consumers don’t have to think about this tax because it is imposed on the medical device manufacturer or importer. But in reality, the cost will trickle down to consumers eventually – directly or indirectly.

Many medical device manufacturers are small, innovative start-up companies with less than 50 employees. Some industry analysts estimate that many of these firms will end up paying more money in excise tax than they’ll earn in profits.

Larger device manufacturers have already begun layoffs, believing that the excise tax will negatively impact their business and profits. In fact, Stryker, one of the largest medical device companies, announced recently that it was laying off 1,170 employees, or 5% of its workforce.

4. Reduction in Allowable Medical Deductions

Taxpayers who itemize will have to meet a higher threshold in order to itemize and deduct medical expenses in 2013. The current threshold allowed you to deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). In 2013 the threshold increases to 10% of AGI in an effort to generate an additional $15 billion for ObamaCare over 10 years.

This will mean that millions of Americans will no longer be able to claim medical deductions. According to Americans for Tax Reform, the average family who took advantage of these itemized medical deductions, earning just over $53,000, will now have to pay an additional $200 to $400 per year in taxes.

Seniors are also expected to be hit hard by this provision, which is probably why the increase is waived through 2016 for individuals age 65 and older.

5. State-Based Health Insurance Exchanges

In 2013, each state is expected to set up its own health insurance exchange, which is essentially a health insurance marketplace to help consumers and small businesses shop for coverage in a way that permits easy comparison of available plan options based on price, benefits and services, and quality. The hope is that exchanges will create more efficient and competitive markets for individuals and small employers.

If states elect not to set up their own exchange, they can participate in one set up by the federal government. So far, over 20 states have opted for the federal option.

Open enrollment for individual and small business health insurance exchanges begins October 1, 2013. This is important because . . . .

6. The Individual Mandate Takes Effect January 1, 2014

Starting January 1, 2014, most Americans will be required to purchase comprehensive health insurance or pay a fine. This “individual mandate” is arguably the most important, and most controversial, provision of the ObamaCare legislation.

Obviously, in order to be covered starting on January 1, 2014, you must have purchased your insurance in 2013, which is why I’m including this as a 2013 healthcare change.

7. Benefits Reporting on Your W-2

If you receive a tax form W-2 in January 2013 for wages paid in 2012, you’ll see a new line showing the benefits (if any) that you received from your employer-sponsored health care plan. The goal of this provision is an attempt to make health-care benefits and spending more transparent.