Healthcare Reform Questions and Answers

By Dr. Mark Lutschaunig, Director of the GRD

How does health care reform impact the veterinary profession? This article continues the series of Questions and Answers concerning the health care reform legislation. For more questions and answers, visit the AVMA website.

What are some of the tax changes in the health care reform legislation?

There are numerous tax changes related to health insurance:

• Beginning in 2014, individuals who don't have qualifying insurance coverage will pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount or 2.5% of household income.
• Beginning January 1, 2011, the legislation will exclude costs for over-the-counter drugs not prescribed by a physician from being reimbursed through a Health Reimbursement Account (HRA) or a Flexible Spending Account (FSA) and from being reimbursed on a tax-free basis through a Health Savings Account or Archer Medical Savings Account.
• The legislation limits the amount of contributions to a flexible spending account for medical expenses to $2,500 per year. This will increase annually by the cost-of-living adjustment and will go into effect January 1, 2013.
• The legislation increases the threshold for itemized deductions for unreimbursed medical expenses from 7.5% to 10% of adjusted gross income. This will go into effect on January 1, 2013, and would be waived for individuals over 65 for tax years 2013-2016.
• On January 1, 2011, the tax for non-health withdrawals from a health savings account will increase to 20% of the disbursed amount.
• The Medicare payroll tax will increase by .9% on earned income in excess of $200,000 for individual taxpayers and $250,000 for married couples filing jointly. This will go into effective January 1, 2013.
• Impose a 3.8% investment tax on unearned income for taxpayers with an adjusted gross income in excess of $200,000 for individual taxpayers and $250,000 for married couples filing jointly. Effective January 1, 2013.
• The new legislation will eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments. That becomes effective January 1, 2013.
• It will impose a 40% excise tax on high-cost health plans starting on January 1, 2018.
• Beginning in 2012, new annual fees will be imposed on pharmaceutical manufacturers and importers.
• Beginning in 2014, an annual fee will be imposed on health insurance companies.
• Beginning in 2012, a 2.3% excise tax will be imposed on the sales of medical devices. A taxable medical device is defined as any instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar article which is:
  • recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them,
  • intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease in man or other animals
  • intended to affect the structure or any function of the human body or the body of an animal, and which does not achieve its primary intended purposes through chemical action within or on the body and which is not dependent upon being metabolized for the achievement of its primary intended purposes.
• There will be a $500,000 deduction limit on executive and employee compensation for health insurance providers. That becomes effective January 1, 2009.
• Indoor tanning salons will began paying a 10% tax on services on July 1, 2010.

For more information, please contact Dr. Mark Lutschaunig.