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Health Care Reform: Patient Protection and Affordable Care Act

A new health care reform bill, called the Patient Protection and Affordable Care Act of 2010, will be signed by the President today. The house passed the bill on Sunday; the Senate passed it in December. They also added a set of amendments that will go back to the Senate for vote.

Since we’re focused on personal finance, I looked through the bills for all the financial impacts for readers. In addition to the health care bill highlights we’ll take a look at the tax credits, tax increases, and fines.

Update: After the Patient Protection and Affordable Care Act was signed into law, it became commonly referred to as Obamacare.

Here is a summary of the health care reform bill, including the reconciliation bill:

Patient Protection and Affordable Care Act

  • $940 billion plan.
  • Extends insurance coverage to 32 million uninsured people.
  • Insurance companies cannot drop you when you get sick.
  • No more lifetime limits.
  • State health insurance exchanges for small businesses and individuals to purchase coverage.
  • Insurers cannot deny coverage to people with pre-existing conditions.
  • Children can stay on their parent’s health plan until age 26.

Tax Credits

  • Health Insurance Premium Tax Credits [1] for individuals and families with incomes up to 400 percent of poverty (which is just over $88,000 for a family of four).
  • Tax credits up to 35% – 50% of costs for some small businesses.

Tax Increases

  • Raise Medicare payroll tax to 2.35% from 1.45% for individuals earning more than $200,000 ($250,000 for married couples).
  • Expand Medicare tax to include unearned income of 3.8% on investment income making more than $200,000 ($250,000 for families).
  • Increase tax on distributions from HSAs [2] and Archer MSAs not used for qualified medical expenses to 20%.
  • Raise 7.5% AGI [3] floor on medical expenses deduction to 10%.
  • Limit health flexible spending arrangements [4] in cafeteria plans to $2,500.

Excise Taxes and Fines

  • 10% excise tax on indoor tanning services.
  • Excise tax or fine for individuals who do not obtain health insurance [5]; $695 annual fine ($2,085 for families).
  • Excise tax or fine for employers (with 50 or more workers) who do not provide health insurance to employees; fine of $2000 per worker each year if any worker receives federal subsidies to purchase health insurance.

Money for Seniors

In addition to the taxes and fines, the health care reform bill includes some financial benefits for seniors:

  • $250 drug rebate for Medicare “doughnut hole” coverage gap.
  • Free annual wellness visit and prevention plan including preventive services with little or no cost.

Cadillac Tax

Finally, there’s a new “Cadillac tax”, which is a 40% excise tax for high cost employer plans. High cost plans are defined as those that cost $10,200 for individuals and $27,500 for families. Levels for retirees and high risk professions are increased $1,650 ($3,450 for families).

Health Care Reform Finances

That’s a lot of money getting shifted around. As the bill is passed, and the amendments are straightened out, I’m sure there will be a lot of discussion on how this will change our personal finances.

We’ll each have more tax planning to do, to make sure that we’re optimizing what’s available to us and at what cost.

Sources: Tax Foundation [6], Reuters [7], CNN [8], and Kaiser Health News [9].

Check out our entire series covering the new health care reform laws: