Health and taxes: what Obamacare now means 60s employers.

AuthorSouter, Patrick D.
PositionHealth Care - Barack Obama

The U.S. Supreme Court's ruling on President Barack Obama's health care reform legislation has left many questions for employers, clue to the complexity of the legislation and the rationale behind the decision. The answers to those questions can provide valuable guidance to businesses and their management moving forward.

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As a result of the Court's decision, the reform bill remains generally the same as when passed by Congress, except that the decision addressed two separate matters contained in the legislation. The first issue was whether what was termed a penalty in the legislation is actually a penalty or a tax.

The requirement that individuals have insurance--commonly referred to as the individual mandate--goes into effect in 2014. For the purposes of determining the legislation's constitutionality, the Court held the charge for non-compliance was a tax, and therefore within the power of Congress to pass under its taxing powers.

The second issue pertains to Medicaid eligibility expansion and what steps the federal government could take against those states that do not implement the expansion. The federal government now provides funds to each state to use in providing Medicaid to those who meet the requirements, currently those whose income is below the federal poverty line.

The legislation allows for increased funding to each state that expands Medicaid eligibility to include those within 133 percent of the federal poverty line. The purpose of expanding eligibility requirements is to offer the ability to participate in the program to the uninsured who currently cannot afford health insurance and do not qualify for Medicaid.

The Court mandated that if a state chooses not to expand its eligibility, the federal government may only withhold additional funding the state would be entitled to under the legislation. The money a state already receives may not be impacted by its decision not to expand eligibility.

What it Means for The Uninsured

The decision does not change the amount owed by uninsured individuals. Those who do not have insurance will be subject to an annual financial charge that once it is fully phased in will be the greater of $695 per person (up to a maximum of $2,085 per family), or 2.5 percent of household income, each year, to be collected by the Internal Revenue Service.

Interestingly, the IRS does not have the same collection authority and tools at its disposal to collect these charges as it does for failure to pay income tax. It cannot pursue criminal penalties, file liens against property or...

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