PPACA Tax Overview BenefitMall Reference Guide - (Page 11)
4.12
How would this tax impact insurance
premiums?
R BENEFIT LL EXCEED
E TAX THRESHOLD
Employers subject to this tax in 2018 will either have
premiums increased by the insurer on an insured
health benefit plan or be subject to a surcharge levied
by the administrator of a self-funded health benefit
plan. Thus, employers will be forced to either absorb
the additional cost of the tax or pass some, or all,
of the cost increase on to employees in the form of
higher premiums or higher deductibles. Ultimately,
the cost of this tax will likely be passed on to the
employees covered by the plan.
4.14
How will PPACA change the way health
savings accounts and similar financing
arrangements operate?
Section 9003 of PPACA establishes a new uniform
standard for the preferred tax treatment of
medicine and drug expenses for Health Savings
Accounts (HSAs), Medical Savings Accounts (MSAs),
Flexible Spending Accounts (FSAs), and Health
Reimbursement Arrangements (HRAs). Effective
January 1, 2011, only prescribed medicines or drugs
including over-the-counter medicines and drugs that
are prescribed will be considered qualifying medical
expenses. Over-the-counter drugs purchased without
a prescription will no longer qualify for preferred tax
treatment, and these accounts will no longer pay for
or reimburse the cost of these items. Additionally,
PPACA increases the penalty tax for using HSA and
MSA funds for nonmedical purposes to 20% beginning
in 2011.23
Finally, PPACA also limits annual FSA
contributions for health care to $2,500.24
4.15
4.16
4.13
What are the long-term implications of
this tax?
While the thresholds for this tax may appear to be
avoidable for now, the longer term implications are
daunting. A study conducted by Tower Watson found
that the average 2010 cost of medical coverage
for non-retiree single coverage was $5,184 and a
non-retiree family plan was $14,988. Using past
levels of premium increases projected forward, the
study estimates that many employer benefit plans will
exceed the excise tax threshold.
Dave Ostendorf, a consulting actuary with Towers
Watson explains, “All it takes to drive costs above
the excise tax cap for six in ten employers is an 8%
average annual cost increase. And, without making
plan design changes, that’s what many employers
are projecting.”
PART C: Assessing the Impact of PPACA on HSAs, MSAs,
FSAs, and HRAs
What, if any, medical supplies are
exempt from this provision?
Insulin purchased with or without a prescription still
qualifies for the preferred tax treatment. In addition,
durable medical equipment or other non-drug medical
items acquired over the counter such as bandages,
tape, and crutches and diagnostic items such as
glucose monitors are exempted.
What verification is required to preserve
the preferred tax treatment?
Individuals seeking reimbursement from an employersponsored
HSA, MSA, FSA or HRA should submit
a copy of the prescription along with the receipt
showing the date and amount of the purchase with
the request for reimbursement.
For further information, including guidance on
purchases of over-the-counter medicines and
drugs from health care providers other than
pharmacies and mail order and web-based vendors
(such as physicians or hospitals), please see IRS
Notice 2011-5.
11
Table of Contents for the Digital Edition of PPACA Tax Overview BenefitMall Reference Guide
PPACA Tax Overview BenefitMall Reference Guide
Table of Contents
Individual Mandate & Tax Implications
Premium Subsidies
Employer Requirements & Tax Implications
PART A: Small Employer Tax Credits
PART B: Large Employer Tax Penalties
PART C: Employer W-2 Reporting Requirements
PART D: Employer Deductions for Retiree Drug Coverage
Additional PPACA Tax Provisions Impacting Employers & Employees
PART A: The Unearned Income Medicare Contribution Tax
PART B: Excise Tax on Comprehensive, High-Cost Health Insurance Plans
PART C: Assessing the Impact of PPACA on HSAs, MSAs, FSAs, & HRAs
Medicaid & Medicare Changes & the Impact on Employers
PART A: The Expanding Medicaid Program
PART B: Emphasis on Prevention & Related Services
PART C: Medicare Part D Updates
PART D: Putting the Coverage Puzzle Together
PPACA Tax Overview BenefitMall Reference Guide
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