CPAs Examine Impact of Health Care Decision
By Deanna C. White
On June 28, the U.S. Supreme Court ruled to uphold much of the Patient Protection and Affordable Care Act (PPACA), President Obama's historic overhaul of the nation's health care system.
The ruling put in motion the most significant expansion of the country's health care system in decades, including the most controversial provision at the heart of the act ‒ the individual mandate that will require U.S. citizens, beginning in 2014, to maintain minimum health care coverage or pay a penalty, which the court ruled as a tax.
The 5-4 decision was announced by Chief Justice John Roberts, who surprised many by splitting ranks with his fellow conservatives to uphold the law. The Court found the provision permitting the penalty to be constitutional within Congress' power under the taxing clause.
"Because the constitution permits such a tax, it is not our role to forbid it or to pass upon its wisdom or fairness," Roberts said announcing the judgment.
Now, as the health care law goes forward, CPAs are examining how the provisions encapsulated in the law ‒ particularly the individual mandate requiring health insurance ‒ will impact their individual clients, and how they conduct business with those clients.
"Essentially, the health care law means the accountant who does personal tax returns has become the de facto first line of implementation on the individual mandate," said Marcus Newman, vice president and registered health underwriter at GCG Financial, located in Bannockburn, Illinois. "The CPA will now have to ask clients if they have health insurance. It's a question that has to be asked, and if the answer is no, the enforcement will then fall on the CPA to calculate that fine."
Newman said once it is determined if the individual client does not possess the required minimum health coverage, then the accountant and client will have to discuss whether the client's taxable liability for not carrying coverage outweighs the cost of securing coverage.
It is a discussion, he suspects, may make many accountants a little uncomfortable.
"To me, the biggest impact of the health care act for CPAs is the fact it forces the accountant into a political conversation they've never had to have before. It requires them to be privy to whether their clients have complied with the law in terms of their personal health care, which is a new aspect of the accountant-client relationship," Newman said. "It's a very different discussion because of the polarizing political nature of the mandate, and the accountant is put right into the middle of it."
The health care law, which promises guaranteed issue health insurance coverage at affordable prices; subsidies to low-income and middle-income earners to help pay for premiums; and forbids insurance companies from denying people coverage based on preexisting conditions or charging people with health problems more for their premiums. This will undoubtedly have a dramatic impact on every citizen.
One of the key factors going forward, experts say, is the fact that states will now be required to establish new health insurance markets, or exchanges, required under the law. The exchanges are required to be in place by January 1, 2014. The exchanges are designed to allow people buying individual coverage to purchase affordable health insurance from a pool of competing insurers.
Newman said it is critical to remember that the exchange program is not meant to replace all existing insurance plans, it is simply meant to augment what exists today.
How to Get Prepared
Marcus Newman offers the following advice to small and midsized CPA firms trying to prepare for changes the law may bring about for their individual clients and how it will affect preparing their personal tax returns.
- Begin the discussion now by asking your individual clients about their current health care status. It's important to find out what their health insurance status is and get that information in their file as soon as possible. These discussions are so much easier to handle now than when there's more at stake.
- Be accessible to your clients now, even before some of the provisions go into effect, to answer any questions about the health insurance law.
- Get educated ‒ access any and all professional resources. The National Association of Health Underwriters or the National Association of Insurance and Financial Advisors are two good places to start. You may also want to consider consulting a health insurance broker or professional to learn everything about the new law.
- Make sure you have calculators or other resources on hand to calculate the tax liability of clients who will not be in compliance with the law.
- Once exchanges are established, learn how to advise clients who are willing to buy health insurance on how to purchase insurance through the exchange.
Although there is still a great deal of uncertainty about the process, he said, in theory, policies offered through the exchanges will differ from traditional policies in the fact that the medical underwriting process which makes it difficult, or in many cases impossible, for some people to secure affordable health care, will no longer apply in the exchange.
The exchanges will be particularly attractive to the self-employed, the employed whose companies do not offer health insurance plans, and those with preexisting conditions.
"The exchanges will change everything because it's a guaranteed issue system and the prices are set in advance," Newman said. "It's just like a buying licorice at a vending machine. There will be a bronze plan, a silver plan, a gold plan, and a platinum plan, and when you press D4, the silver plan will come out."
Newman said the exchange program has the ability to better control premiums if you are insurable and create a larger healthy pool in the private system.
"That dynamic may arrest the premium growth and the inflation we've seen," Newman said. "I could argue it's just as reasonable to see it as a positive change as the doom and gloom some people are predicting."
Still, many CPAs are still expressing some concern over some key issues in the health care law.
Texas Society of CPAs (TSCPA) member Jim Smith, CPA, of Smith Jackson Boyer & Bovard in Dallas, said he is concerned about preexisting condition issues embodied in the law. "My concern is how will insurance companies address this issue? There are still many details to be ironed out," Smith said. "Ultimately, insurance benefits payments will go up and premiums may consequently increase dramatically."
Many tax experts are also red-flagging provisions in the law that would require higher Medicare taxes for high-income taxpayers as potential areas of concern for their clients.
According to information included in the PPACA, beginning in 2013, taxpayers with incomes in excess of certain limits will pay an additional 0.9 percent Medicare tax on the excess. In addition, they'll pay a new, 3.8 percent Medicare tax on unearned income, such as interest, dividends, rents, royalties, and certain tax gains.
"My concern is the overall tax aspect, and how it will affect the economy as a whole," Smith said. "Assuming the Bush tax cuts expire at the end of the year, the maximum long-term capital gains and dividends tax rate, which is currently is 15 percent, would increase. The health care tax would bring rates on dividends to as much as 43.4 percent."
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