The Tax Attic with Jerry Coon — November 4, 2010

Health care provisions reviewed

The two national health care bills—the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, as signed into law by President Obama last March—sure have been widely discussed in the election battle that ended this Tuesday. The point of both of these laws, in the end, is to require all Americans to be covered by some type of health care.

Jerry Coon

Employers and individuals will be penalized if they choose not to participate. Of course, over 20 states have sued the federal government for overstepping their bounds. Does the federal government really have the right to force people to participate in the health care system or pay a penalty to not participate? If they do, does this also mean that they can penalize people in order to get them to not participate or participate in some other activity? This could be a rather unique way to balance the budget! It also could be viewed as a way to encourage or discourage certain behavior patterns.

Americans can do certain things or not do certain things if they are willing to pay for the privilege. The ramifications are endless. If you thought Roe v. Wade was a big case, the experts can hardly wait for the Supreme Court to weigh in on these cases.

The Republicans and especially the Tea Party candidates are looking to fully repeal both of these acts. Democrats are not going to go along with this without a fight. That means there will be a big battle that I am sure we will all get very tired of seeing and reading about before things are settled.

In any event, there are many provisions that went into effect immediately or are set to go into effect on January 1, 2011. It’s hard to imagine those provisions will be repealed. Most provisions, however, go into effect in 2012 and beyond. In my thinking, those are the prime candidates for being repealed or at the very least being revised. Let’s go over those provisions in effect now or on January 1, 2011 that most likely will remain in effect.

First, employers must provide employees with the option of covering adult children under the age of 27. This provision applies whether or not the child is a dependent of the employee and would apply even to a married adult child. A “child” in this context includes the taxpayer’s son, daughter, stepson, stepdaughter, adopted child, or eligible foster child. This provision should stay in effect especially in today’s environment in which our children are having a tough time finding jobs or even getting out of school by the age of 27. I can see it being revised, however, to not include married nondependent children.

This particular provision is a perfect example of these two health care laws. It takes one problem and, instead of just solving the problem, it goes one step further than required. The problem is that many of our children are either still in school at age 26 or aren’t able to find a job with benefits so they don’t have health care. By previous law, employers could refuse to cover children who weren’t claimed as a dependent on the parent’s tax return. A straightforward, simple fix would be to say that employers can no longer refuse to cover a child through the age of 26. The extra step thrown in requires the employer to cover married children. Employers must now cover a married child even if that married child’s spouse has insurance but that insurance isn’t as good as the parent’s insurance. I’m not sure about that extra step.

Second, beginning January 1, 2011, over-the-counter medications not prescribed by a doctor, such as cold medicines, can no longer be reimbursed by pre-tax Flexible Spending Accounts, Health Savings Accounts, Archer Medical Savings Accounts, or Health Reimbursement Accounts. Insulin is an allowable medicine. This provision will most likely stand in its present form.

Third, starting for W-2s issued for 2011 income, employers must include on the W-2 the value of the employer’s health insurance coverage for the employee. This amount is not taxed to the employee but it will be reported to the IRS. I’m not sure what the IRS is going to do with this information, but it will provide some statistics that are not known at this time. Of course, if I was a conspiracy person, I could also say that this reporting would also make it easier down the road to start taxing this benefit.

We will have to wait and see what the new Congress will do to these provisions and many others. Health Care Reform has really taken on a larger-than-life role. How far can the federal government go in its quest to cover everyone under health insurance? Can it use tax and enforce penalties on noncompliant taxpayers in that quest? The federal government has always tried to find unique ways to raise revenues, but this might be going just a bit too far. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent.
He owns 
Action Tax Service in Rockford.
Contact Jerry 

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