The Affordable Care Act: How it May Impact Your Finances

The Affordable Care Act – often referred to as the new health care reform law – is moving forward following the recent Supreme Court ruling upholding the Act. Some elements of the health care law are already in place and more are coming.

The most notable is that starting in 2014 most Americans will be required to have health insurance coverage, either through an employer-sponsored plan or by purchasing it themselves. Individuals who are not covered by an employer plan and fail to purchase their own coverage will be subject to penalties. However subsidies will be provided for lower income Americans who may not be able to afford coverage. If you already have coverage through an employer, you aren’t likely to see any significant changes.

Key provisions already in place or coming soon

Elements of the law that are already in effect, or soon will be, may have an impact on many families’ health care costs. Some of these include:

•     Coverage for young adult dependents. Young adults can stay on their parents’ group health plan until age 26.1 Previously, young people would not be included as an eligible dependent unless they were a full-time student. Now that this provision is in effect, it may cost some families less to cover a young adult on their plan.

•     Children with pre-existing conditions. Those under the age of 19 with pre-existing conditions can no longer be denied coverage and by 2014 no American of any age can be restricted from insurance coverage. This may make healthcare more affordable in some respects for those who have such a condition or with a child who fits into this category.

•     Reduced prescription costs for some Medicare beneficiaries. Those who use the Medicare Part D prescription drug benefit and fall into the coverage gap (often referred to as the “donut hole”) will receive a 50 percent discount on brand name prescription drugs this year. The drug coverage gap is scheduled to be completely phased out by 2020 so that all prescription drug costs will be paid under Medicare Part D.

•     Higher rates for some. Insurance companies can currently charge higher rates based on health status or gender. Beginning in 2014, rates can only be based on age, geography, family size and tobacco use. For some, the increase in rate may be negligible, but it could be larger for others who will consequently be paying more for healthcare in the future due to these changes.

•     Coverage for preventive care services. Some or all of the cost of preventive care services must be paid for by your insurance company.2 This includes blood pressure screenings, mammograms and routine vaccines for children. Not all plans have to comply with this rule, so check with your plan to see what is available to you.

•     No caps on lifetime coverage costs. Insurance companies and group health plans can no longer put caps on lifetime coverage costs, so treatment may continue for more complex conditions regardless of the expenses involved.

New taxes on higher income taxpayers in 2013

On the immediate horizon are new tax provisions that could impact higher income Americans. These take effect beginning January 1, 2013 and make tax planning in 2012 more critical for those who have enough income to be affected by them. They won’t affect most Americans, but the new taxes will generally apply for:

•     single tax filers with income of more than $200,000; and,

•     married couples filing a joint return with income of more than $250,000.

Any earned income above those threshold amounts will be subject to a 0.9 percent Medicare surtax beginning in 2013. For example, a married couple with wages or self-employment income of $300,000 will have to pay the surtax (on top of other taxes due) on $50,000 of their earned income. That amounts to an additional tax of $450.

A new 3.8 percent Medicare contribution tax will also apply to certain net investment income for married couples filing jointly with income above $250,000 or single tax filers with income higher than $200,000 (based on Modified Adjusted Gross Income or MAGI). This includes interest, dividends, capital gains, annuity income and passive income from rents or other activities.3 For example, a couple with $300,000 of investment income4 would pay an additional tax of $1,900 (3.8 percent of $50,000 above the threshold limit of $250,000) in 2013.

Individuals who may be subject to these new taxes should consult with their financial and tax advisors to discuss appropriate steps to try to minimize the impact on their bottom lines.

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Gregory Younger, CRPC is a Financial Advisor with Ameriprise Financial Services, Inc. in St. Peters, Missouri. He specializes in fee-based financial planning and asset management strategies and has been in practice for  11 years.  To contact him, http://www.ameripriseadvisors.com/gregory.d.younger/ or 300 First Executive Avenue, Ste. D, St. Peters, MO  63376; (w) 636-405-5004, (c) 636-233-2099.

Advisor is licensed/registered to do business with U.S. residents only in the states of MO, NV, CA, IN, GA, WA, IL, KS, AL, AR, FL, TN.

This communication is published in the United States for residents of Missouri only.

1 Certain group plans generally do not have to provide dependent coverage until 2014 if the adult dependent has another offer of employer-based coverage aside from coverage through the parent.

2 For individual policies created after March 23, 2010, and certain group health plans.

3 This does not include qualified plan, tax-exempt or most active business income. For individuals, the new 3.8% tax applies to modified adjusted gross income over the threshold or to net investment income, whichever is less.

4 Modified adjusted gross income made up of $300,000 of net

Ameriprise Financial and its representatives do not provide tax or legal advice. Consult your tax advisor or attorney regarding specific tax issues.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

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