New ObamaCare Taxes for Medicare Hit American Workers

by Frank Byrt

The American Institute of CPAs (AICPA) hosted a conference call January 17 to discuss compliance and planning issues surrounding the new 3.8 percent Medicare surtax that kicks in this year.

The panelists noted that the new regulations are complex and incorporate 150 pages of rules under the new law, the Patient Protection and Affordable Care Act, which went into effect on January 1. The additional tax provisions come as part of the Health Care and Education Reconciliation Act of 2010, which was ruled constitutional by the Supreme Court last June.
The discussion focused on issues tax return preparers need to be aware of that will result in changes and additional tax for high-income taxpayers. This includes increases in tax on earned and unearned income in 2013.

Beginning with the 2013 tax year, under Section 1411 of the tax code, a new 3.8 percent net investment income tax (NIIT) on unearned income will apply to all taxpayers whose income exceeds a certain “threshold amount,” which is $200,000 for individuals and $250,000 for married couples filing jointly. This new NIIT will raise the marginal income tax rate for affected taxpayers in some instances to the 39.6% tax bracket to a marginal rate of 43.4%.

Estates and trusts will also be subject to the NIIT if they have undistributed net investment income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year. The threshold amount was $11,650 in 2012.

Also, beginning in the 2013 tax year, individual taxpayers with earned income in excess of $200,000 or $250,000 if married filing jointly, will have to pay an additional 0.9% in Medicare taxes on earned income above these levels. Previously, workers paid a flat 1.45% of their wages into Medicare.

About the author: Frank Byrt is an Analyst/Reporter for covering the financial markets, mutual funds and economics.

Seniors, are you ready for the ObamaCare cuts to your Medicare?

If you were paying attention during the election season it was hard to miss the opposition’s battle cry: ObamaCare cuts the Medicare budget by $716 billion. What does this mean for the average Medicare beneficiary? What does this mean to you?

In 2013 most Medicare recipients will see few changes. The shrinking Part D doughnut hole is underway, there are a couple more wellness benefits, and your Part B premium went up a few dollars. That is, unless you’re wealthy, in which case your Part B premium skyrocketed. ObamaCare now considers seniors earning more than $80,000 per year as being privileged, so you get to pay more for your healthcare.

If it seems like seniors got though unscathed, prepare yourself. The real impact won’t be felt until 2014. That’s when the effects of the cuts to federally funded programs like Medicare Advantage will start to be felt.

In what seems like a cruel joke, in his first administration President Obama heavily funded private insurers to boost the quality and enrollment in the Medicare Advantage program. In 2014 the Affordable Care Act (ACA) swoops in and takes the subsidy away.

The original aid package did its job. As much as 30 percent of seniors with Medicare have a 2013 Advantage plan that offers better healthcare with less risk of high medical bills. The bad news for taxpayers is that it costs the government about 14 percent more to have seniors on Medicare Advantage than it does Original Medicare. Going forward, lower Advantage plan subsidies are pegged squarely on quality.

What do the looming cuts mean for you if you have a Medicare Advantage plan? From the insiders I’ve spoken with there are three big changes coming down the tracks: premium increases, benefit reductions and fewer plan choices.

In addition to subsidy cuts, the ACA mandates that insurers pay out 80 percent of the premiums received in direct health benefits. This seems like a smart regulation, but it will have a massive impact on regional insurers that are unable to mitigate their financial risk and show a reasonable return for shareholders. In other words, only the non-profits (e.g., Blue Cross and Blue Shield organizations) and the industry giants (e.g., UnitedHealthcare, Aetna, Cigna, Kaiser, etc.) will be able to maintain competitive rates in this arena.

You might be thinking that none of the budget cuts affect you because you don’t use Medicare Advantage. For you, there’s an even bigger surprise coming.

Starting in January, 2014, millions of Americans that do not have health insurance today will suddenly qualify for Medicaid. Millions more will qualify for subsidized HMO and PPO plans through the state and federal health insurance exchanges (HIX). This is expected to create a flood of new patients that will overwhelm healthcare providers.

To understand how this affects those with Original Medicare, you need to understand the capitation process of the managed care industry. Capitation is a payment arrangement for healthcare service providers such as physicians or nurse practitioners. It pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. It’s a great way for providers to manage their budgets and their workload.

What this means for Original Medicare patients is that they will have less access to doctors. People with private insurance, including Medicare Advantage, will have better access because doctors are under contract to provide them care. As a result, it is anticipated that more and more doctors will simply stop accepting new patients with Original Medicare due to their workload.

The changes brought about by the ACA are exactly why the health insurance industry came out in full support of ObamaCare. For the health insurance providers, the subsidy cuts to the Medicare Advantage program will cause a short-term revenue dip followed by a huge, long-term gain. The net result is that seniors with Medicare Advantage will have access to the best healthcare available while all others will be stuck in long lines or never receive the care they need.

In a future blog post I will talk about how the government is looking to further limit your access to healthcare if you have a Medigap plan.

ObamaCare Rejected! States Refuse To Implement. No Impact on Medicare.

States were given until until 14 December, 2012 to decide if they would build a health insurance exchange (HIX) or defer to the federal government. The health insurance exchange system is central to the government’s ability to provide regulated health insurance services to individuals if it’s not provided to them by an employer.

The deadline has come and gone, and the exchange concept was rejected by more than half of the states. They are simply refusing to participate in this crucial component of the Affordable Care Act law. So far, 18 states and the District of Columbia have plans to build and manage their own exchanges, while seven others have asked the federal government to create their exchanges.

The majority of the states carried by Mitt Romney in the 2012 presidential election refuse to build an exchanges. These states, generally speaking, would vote to repeal Obamacare. State leaders carefully listened to their constituents when they decided to say no to spending taxpayer money to build a HIX of their own.

It isn’t just the Romney states. States that President Obama carried in the election are also rejecting the plan. Most notably Florida, Ohio, Pennsylvania, Virginia, New Jersey, Wisconsin and New Hampshire said no. Is this politics or economics?

Earlier this month Texas Governor Rick Perry, who also nixed the idea of his state creating an exchange, said “The idea that you’ve got a state-instituted exchange, but it has to be federally approved. So the fact is the federal government’s going to have to run these,” Perry said. “And they don’t have the expertise, nor do they have the money.” Perry is just one of many governors predicting that the implementation of Obamacare is “going to be a disaster.”

Could this lack of state participation mean that states will not have access to health insurance plans by 1 October, 2013, as mandated by law?

The uncertainty of the exchanges raises serious the questions. Can Obamacare be fully implemented by 2014 when the individual mandate requires all citizens to have private health insurance? Given the enormity of building the complex system, gathering the massive amounts of data required, and gaining cooperation at the state level, it seems probable that failure or a serious delay is looming.

Is ObamaCare Headed for a Personal Privacy Disaster Worse than Medicare?

As we get ready to start the new year I have serious concerns. At the top of the list is personal privacy and the potential for fraud within the central system designed to implement the benefits offered by the Patient Protection and Affordable Care Act (aka, “ObamaCare”).

For decades seniors have complained about, and suffered from, the fraud that runs rampant through the Medicare program. At the root of the problem is a serious lack of security protecting social security numbers. Every year, tens of thousands of seniors fall victim to identity theft, and the tax payers get soaked to the tune of $60 million, or more. Regardless of the efforts by the Justice Department to round up the bad guys, the federal government has failed to deal with the root problem. The fraud persists.

Now, as the Health Insurance Exchanges (HIX) — the crown jewel of ObamaCare – speed towards opening day on 1 October, 2013, only a small number of states have their projects budgeted, staffed and making progress. Among the states plowing forward is California, with a history of massive project failures at the Health and Welfare Agency.

The fail-safe plan for the Department of Health and Human Services (HHS) is a centralized HIX system that will provide exchange services for the states that opt-out of developing their own (and the states that fail to create one successfully). Although HHS has experience creating large, web-based systems for the Medicare program (e.g., Medicare Advantage and Medicare Part D Drug Plans), this is the first time it will attempt to pull personal information about 300 million people from a myriad of agencies, including the IRS, Social Security Administration, Department of Justice, Department of Homeland Security, and the state tax boards.

The data gathering is sensible, in the abstract. Similar information is collected when you apply for a mortgage. But when the constantly updated information is combined in a central data hub, the potential for abuse is staggering. For one thing, the hub will have all the details needed to steal identities and fraudulently access credit.

The data gathering is necessary. Similar information is collected about you when you apply for a home loan. However, when constantly changing data is centrally maintained, the opportunity for abuse is mind blowing, and could make the Medicare fraud problem look like child’s play.

The new HHS central database will have all of the information the government needs to determine eligibility. That means it will have everything thieves need to steal your identity and fraudulently access your credit. Without the proper security measures in place, it’s a ticking time bomb.

With an incredibly short time frame to develop the federal health insurance exchange, is the data in the central database guaranteed to be secure? I sure hope so.