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The Patient Protection and Affordable Care Act—commonly known as Health Care Reform—went into effect in March 2010, bringing about numerous changes for businesses and individuals alike. For many, these changes have been overwhelming calling for new requirements, potential penalties, data collection and more. Some of the primary provisions of the initial Health Care Reform include:
Under Health Care Reform, beginning with plan years starting on or after September 23, 2010, when a plan covers dependents, it must continue to make the coverage available until a child reaches the age of 26, even if the young adult is married, no longer lives with his or her parents, is not a dependent on a parent's tax return, or is no longer a student.
If You Have a Grandfathered Plan
Note that there is a temporary exception for grandfathered group health plans, which may exclude adult children who are eligible to enroll in an employer-sponsored health plan other than the group health plan of the parent. This exception will no longer apply for plan years beginning on or after January 1, 2014.
Note: Individual states may have dependent coverage requirements that are more favorable to employees. Employers and plan administrators should consult with their state insurance departments to determine if additional requirements apply to their plans.
Tax Treatment—Coverage Excluded from Income
The value of any employer-provided health coverage for an employee's child is excluded from the employee's income through the end of the taxable year in which the child turns 26. For this purpose, a child includes a son, daughter, stepchild, adopted child, or eligible foster child. In addition to the exclusion from income of any employer contribution towards qualifying adult child coverage, employees may pay the employee portion of the health care coverage for an adult child on a pre-tax basis through an employer's cafeteria plan.
Although not required under the law, some employers may decide to continue coverage beyond an adult child's 26th birthday. In such a case, the value of the employer-provided health coverage is excluded from the employee's income for the entire taxable year in which the child turns 26. Thus, if a child turns 26 in March but stays on the plan through December 31st (the end of most people's taxable year), all health benefits provided that year are excluded for income tax purposes.
A "grandfathered plan" is a group health plan in existence as of March 23, 2010 (the date Health Care Reform was signed into law) that has not made certain significant changes that either reduce benefits or increase out-of-pocket costs for individuals covered under the plan. (The date a particular employee joins a plan does not necessarily reflect the date the plan was created. New employees and new family members can be added to grandfathered group plans after March 23, 2010.)
Why is Grandfathered Status Significant?
Grandfathered plans do not have to comply with certain requirements under Health Care Reform. However, a plan may lose its "grandfathered" status if it makes certain significant changes. If a plan loses its grandfathered status, it will need to come into compliance with those requirements from which it was previously exempt.
A health plan must disclose in its plan materials whether it considers itself to be a grandfathered plan and provide certain other information in the Disclosure of Grandfathered Status.
Requirements for Grandfathered Plans
Required Coverage of Preventive Services
The term "preventive services" refers generally to routine health care that includes screenings, check-ups, and patient counseling to prevent illnesses, disease, or other health problems. Under the law, group health plans must provide coverage of certain preventive health services—without cost-sharing—based on various agency and advisory committee recommendations and guidelines. Guidelines for preventive services are regularly updated to reflect new scientific and medical advances. As new services are approved, health plans will be required to cover them with no cost-sharing for plan years beginning one year later.
The following is a partial listing of preventive services required to be covered under Health Care Reform. A complete list of required preventive services is available from the U.S. Department of Health and Human Services.
Federal law gives a tax credit to eligible small employers who provide health care coverage to their employees.
A small employer is eligible for the credit if
Each part-time employee counts as a fraction of a full-time equivalent employee (for example, two half-time employees equal one full-time equivalent employee for purposes of the credit). For tax years beginning in 2014 or later, the employer generally must contribute toward premiums on behalf of each employee enrolled in a qualified health plan (QHP) offered by the eligible small employer through a Small Business Health Options Program (SHOP Marketplace) established as part of the Affordable Care Act to qualify for the credit.
More information is available through the IRS.
Additional Medicare Tax went into effect in 2013 and applies to wages, compensation, and self-employment income above a threshold amount.
An individual is liable for Additional Medicare Tax if the individual’s wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual’s filing status:
Married filing jointly
Married filing separate
Head of household (with qualifying person)
Qualifying widow(er) with dependent child
Since its inception, and with a new government administration, changes to Health Care Reform often arise and it’s important for individuals and businesses to stay updated. The team at Brooks Financial Group can help play a role in ensuring you’re aware of changes that could impact you or your business.