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HEALTHCARE TAX UPDATE
SEPTEMBER 28, 2012
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AGENDA
1. Expiring individual income tax cuts? 2012 Election.
2. Tax provisions of the Affordable Care Act.
3. Schedule H – State of New Jersey hospitals and American Hospital Association special project.
4. New IRS Code Section 501(r) hospital requirements.
5. Affordable Care Act timeline.
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EXPIRING FEDERAL TAX PROVISIONS
PART ONE
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EXPIRING FEDERAL TAX PROVISIONS
Individual Income Tax Rates
Starting in 2013, the marginal Federal individual income tax rates for the top two brackets rise from 33% and 35% will revert to the year 2000 rates of 36% and 39.6%, respectively.
Dividend Tax Rate
Starting in 2013, qualified dividends would no longer be taxed at a rate of 15%; they will revert to being taxed as ordinary income.
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EXPIRING FEDERAL TAX PROVISIONS
Capital Gains Tax Rates
Starting in 2013, the long term capital gains tax rate
will increase from 15% to 20%.
Child Tax Credit
Starting in 2013, the child tax credit for eligible
households will be reduced from $1,000 per child to
$500.
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EXPIRING FEDERAL TAX PROVISIONS
Dependent Care Tax Credit
Starting in 2013, the dollar amount limit for
creditable expenses is reduced from $3,000 to
$2,400 ($6,000 to $4,800 for two or more children),
thereby reducing the credit.
Effective January 1, 2013 there are 64 additional
Federal tax provisions due to expire.
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EXPIRING FEDERAL TAX PROVISIONS
New York Times, August 2, 2012
Average savings per T/P from tax cuts, 2004-2010
► Taxable income less than $10,000 $335
► Taxable income $10,000 - $19,999 $1,448
► Taxable income $20,000 - $29,999 $4,302
► Taxable income $30,000 - $39,999 $6,127
► Taxable income $40,000 - $49,999 $7,040
► Taxable income $50,000 - $74,999 $9,839
► Taxable income $75,000 - $99,999 $15,009
► Taxable income $150,000 - $199,999 $28,894
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EXPIRING FEDERAL TAX PROVISIONS
New York Times, August 2, 2012; continued
Taxpayers with taxable incomes $19,999 and below
comprise approximately 29% of U.S. taxpayers with
those whose taxable income is $20,000 and above
comprising approximately 65.9% of U.S. taxpayers.
Those taxpayers with taxable incomes above
$200,000 make up the remaining 5.1%.
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TAX UPDATE & THE PATIENT PROTECTION
AND AFFORDABLE CARE ACT
PART TWO
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AFFORDABLE CARE ACT PROVISIONS
Form W-2 healthcare benefit reporting.
.9% Surtax.
3.8% tax on unearned income.
Small Business Health Care Tax Credit.
Changes to FSAs.
Medical Device Excise Tax.
Health Insurance Premium Tax Credit.
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FORM W-2 HEALTHCARE BENEFIT REPORTING
Mandatory for 2012.
Relief for small employers:
Less than 250 Forms W-2 in the prior year.
Method of reporting:
Form W-2, Box 12, Code DD.
Includes employer and employee portions.
Three methods of calculation.
Penalties for non-reporting:
$200 per Form W-2, maximum $3 million.
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MAJOR TAX PROVISIONS - 2013
A new 0.9% surtax will be added to the 1.45% Hospital
Insurance (Medicare) payroll taxes paid by individuals
earning more than $200,000 per year ($250,000 for joint
filers). Subject to payroll withholding.
New IRS Code Section 1411 imposes a 3.8% tax on
unearned income of individuals earning more than
$200,000 per year ($250,000 for joint filers).
Contributions to health care FSA’s limited to $2,500 as
of 1/1/2013.
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2014 AND BEYOND
Individual mandate.
Employer “play or pay” mandate.
State-based health insurance exchanges.
Provide refundable and advanceable tax credits to
individuals and families.
Prohibit all pre-existing condition exclusions.
Eliminate all lifetime caps for essential benefits.
Reinsurance program.
High cost insurance plans.
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INDIVIDUAL MANDATE
Penalties:
Pay a tax penalty of $695 per year up to a maximum
of 3X that amount; $2,085.
Flat fee phase-in schedule; $95 – 2014, $325 – 2015
and $695 – 2016, or
Percentage of taxable income phase-in schedule;
1% - 2014, 2% - 2015 and 2.5% - 2016.
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INDIVIDUAL MANDATE
Exemptions:
Financial hardship, religious objections,
incarcerated individuals.
lowest cost option exceeds 8% of an individual’s
income.
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EMPLOYER “PLAY OR PAY” MANDATE
If Employer does not offer coverage
Effects Large Employers; those who employ more
than 50 full-time employees.
Minimum essential coverage.
At least one employee enrolled in a Qualified
Health Plan.
Annual fee equal to $2,000 times the number of
employees exceeding thirty.
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EMPLOYER “PLAY OR PAY” MANDATE
If Employer offers coverage:
Required to pay annual fee equal to the lesser of:
$2,000 times the number of employees exceeding
thirty; or
$3,000 for each employee receiving a premium tax
credit.
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STATE-BASED HEALTH INSURANCE EXCHANGES
American Health Benefit Exchanges and Small Business
Health Options Program (SHOP) Exchanges.
Individuals and small businesses with up to 100
employees.
Exchanges will have four levels of coverage – bronze,
silver, gold or platinum.
Beginning in 2017, businesses with more than 100
employees may purchase coverage in SHOP
Exchange.
www.healthcare.gov
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REFUNDABLE AND ADVANCEABLE PREMIUM CREDITS
Eligible individuals and families with incomes
between 100-400% of Federal Poverty Level (“FPL”)
to purchase insurance through Exchanges.
FPL in 2011 for individual was $43,650; family of four
was $89,400.
Premium credits provided on a monthly basis and
are on sliding scale.
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Premium contributions are limited to the following
percentages of income for specified income levels:
100-133% FPL: 2% of income
133-150% FPL: 3-4% of income
150-200% FPL: 4-6.3% of income
200-250% FPL: 6.3-8.05% of income
250-300% FPL: 8.05-9.0% of income
300-400% FPL: 9.5% of income
REFUNDABLE AND ADVANCEABLE PREMIUM CREDITS
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HIGH COST INSURANCE PLANS
Effective for tax years beginning after December
31, 2017.
Excise tax on insurers of employer-sponsored health
plans with aggregate values exceeding $10,200 for
individual coverage and $27,500 for family
coverage.
40% excise tax on amount by which annual
coverage exceeds threshold amounts.
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SCHEDULE H
STATE OF NEW JERSEY HOSPITALS
AHA SPECIAL PROJECT
PART THREE
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FORM 990 – SCHEDULE H
Schedule H background.
New Jersey hospitals benchmarking.
NJ Senate, S-782, NJ For-Profit Hospital Information
Disclosure Agreement.
American Hospital Association Schedule H project.
1. Community benefit – IRS definition.
2. Total benefits to the community.
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SCHEDULE H, PART I, COMMUNITY BENEFIT
Community Benefit
1. AHA versus CHA model (excludes bad debt at cost
and Medicare shortfall).
2. Schedule H, Part III reports bad debt and Medicare
shortfall. Also asks for why you feel bad debt and
Medicare shortfall should be treated as community
benefit.
3. Costs not charges.
4. Senate Finance Committee – 5% Test.
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Categories of Community Benefit
a. Financial Assistance at Cost.
b. Medicaid shortfall.
c. Community Health Improvement Services and
Community Benefit Operations.
d. Health Professions Education.
e. Subsidized Health Services.
f. Research.
g. Cash and in-kind contributions.
SCHEDULE H, PART I, COMMUNITY BENEFIT
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SCHEDULE H, PARTS II AND III
Form 990, Schedule H, Part II
a) Community Building Activities.
Form 990, Schedule H, Part III
a) Bad debt expense.
b) Estimated amount of bad debt attributable to
patients eligible under the organization’s
financial assistance policy.
c) Medicare Shortfall.
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2010 AND 2009 NJ FORMS 990
IRS COMMUNITY BENEFIT
2010 NJ hospital community benefit percentage average
7.66% (omits Hoboken which did not file Schedule H)
2009 NJ hospital community benefit percentage average
7.59% (omits Hoboken which did not file Schedule H)
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2010 NJ FORMS 990
IRS COMMUNITY BENEFIT – THE TOP 5
1. Christ Hospital 27.54%
2. Palisades Medical Center 12.22%
3. Jersey City Medical Center 12.17%
4. Monmouth Medical Center 11.64%
5. Christian Health Care Center 11.48%
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2010 NJ FORMS 990
IRS COMMUNITY BENEFIT – THE BOTTOM 5
1. Valley Hospital 2.21%
2. St. Mary’s Hospital (Passaic) 3.57%
3. Hackettstown Regional Medical Center 4.02%
4. Trinitas Regional Medical Center 4.12%
5. St. Francis Medical Center (Trenton) 4.46%
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2010 AND 2009 NJ FORMS 990
IRS COMMUNITY BENEFIT
Atlantic Health 7.08% and 7.20%
AtlantiCare Regional Medical Ctr 9.91% and 8.95%
Cooper Health System 9.80% and 9.41%
Hackensack University Medical Ctr 7.06% and 7.20%
Meridian Health 9.48% and 8.95%
Robert Wood Johnson Univ. Hosp. 8.65% and 8.57%
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AMERICAN HOSPITAL ASSOCIATION
AHA project, 2009 Form 990, Schedule H, Part I;
IRS community benefit.
a) Small hospitals; 7.3%
b) Medium hospitals; 8.0%
c) Large hospitals; 9.8%
d) Hospital systems; 9.3%
e) Overall; 8.4%
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AHA 2009 SCHEDULE H PROJECT
1. Based upon first year filings of Form 990, Schedule H.
2. AHA released in February, 2012; www.aha.org
3. Results based upon 571 Schedule H’s; 477 individual
hospitals and 94 hospital systems. The 94 hospital
systems are estimated to represent 400 individual
hospitals.
4. The 900 hospitals in the AHA project represent
approx. 30% of the 2,900 NFP U.S. hospitals.
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AHA 2009 SCHEDULE H PROJECT
1. AHA publicized the average of the 571 participating
hospitals and hospital systems.
2. “Total benefits to the community” of 11.3%.
a) Total charity care, means tested govt programs
and other benefits: 8.4%
b) Community building activities: 0.1%
c) Bad debt expense attributable to charity care:
0.4%
d) Medicare shortfall: 2.4%
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IRS CODE SECTION 501(R)
HOSPITAL REQUIREMENTS
PART FOUR
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HOSPITAL REQUIREMENTS - AFFORDABLE CARE ACT
1. Code Section 501(r)(3); community health needs
assessment (“CHNA”) and written implementation
strategy– 2013 Forms 990.
2. Code Section 501(r)(4); Financial Assistance Policy –
2011 Forms 990.
3. Code Section 501(r)(5); Limitation on Patient Charges –
2011 Forms 990.
4. Code Section 501(r)(6); Limitation on Collection Efforts –
2011 Forms 990.
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IRS NOTICE 2011-52, JULY OF 2011
Requirements effective for tax years beginning after
March 23, 2012.
Two written reports; hospital facility by facility basis
1. A CHNA (make widely available).
2. Written implementation strategy (adopt and
attach to the Form 990).
Treasury and IRS to issue proposed regulations.
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IRS ISSUES PROPOSED REGULATIONS
Code Section 501(r)(4); (5) and (6); respectively,
released on June 26, 2012 and public comments are
due to IRS by September 24, 2012. The proposed
regulations are ninety-four (94) pages in length.
Does not address CHNA requirements.
Effective for tax year beginning after publication of
temporary or final regulations in the Federal Register.
IRS estimated hours to comply annually: 11.5
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IRS ISSUES PROPOSED REGULATIONS
Key terms
1. Financial Assistance Policy (FAP).
2. Amounts generally billed (AGB).
• Look back method.
• Prospective method.
3. Extraordinary collection actions (ECA).
• Notification period.
• Application period.
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PUBLIC COMMENTS
AHA submitted letter dated August 23, 2012
Estimated hours to comply annually: 250 - 2,000
HFMA submitted letter dated August 27, 2012
Estimated hours to comply annually: 120 – 2,700
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AFFORDABLE CARE ACT TIMELINE
PART FIVE
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Early retiree re-insurance program
Non-discrimination rules
Extension of dependent coverage to age 26
No lifetime limits
No unreasonable annual limits
Free preventive care
No pre-existing condition exclusion for those
under age 19
Uniform benefit plan documents
No rescissions
Holding insurance companies accountable
for unreasonable rate hikes
Small business health insurance tax credits
FSA contribution limits
Elimination of deduction for
Medicare Part D drug subsidy
Medical expense deduction floor
increases to 10%
Increase in employee Medicare
payroll tax by 0.9% on earned
income
Increase in additional individual
hospital insurance tax by 3.8% on
unearned income
HSA, FSA and HRA
restriction on over-the
counter drugs
Increase to 20% penalty
for HSA non-qualified
distributions
Bringing down healthcare
premiums
Addressing overpayments
to big insurance
companies
Cap on certain insurers' tax deductions for
compensation
Employee notice on exchange options
Linking payment to quality outcomes
Encouraging integrated health systems
Mandatory Form W2 reporting
Coverage expansion
Employer "play or pay" mandate
Individual mandate
Exchanges begin
No annual limits
No excessive wait periods
Small business tax credit
(second phase)
40% excise tax
on high-cost
plans
State may permit
large employers
to purchase
through exchange
2011
2012
2013
2014
2017
2010
PPACA TIMELINE
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Scott J. Mariani, JD, Partner
Karen L. Henderson, Tax Manager
WithumSmith+Brown, PC
465 South Street, Suite 200
Morristown, NJ 07960
973-898-9494