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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