Tax Attic August 22, 2013

Jerry Coon

Jerry Coon

The hottest topic on the accountant/tax professional seminar circuit of today is not income tax; it’s the Affordable Care Act or as it is more commonly called: Obamacare. I get emails daily marketing two hour classes or webinars, four hour classes or webinars, and eight hour classes or webinars. I’m not sure about the eight hour class or webinar. After about two hours, everyone’s mind is already whirling. Who knows what level of psycho-therapy might be needed after a brain has to endure eight hours of Obamacare detail. In addition, there is the inevitable disclaimer accompanying the information stating that everything presented is subject to change and many things learned today might not apply tomorrow.

It may be important to go over the reasons that the Affordable Care Act or Obamacare was passed in 2010. The health care system for many people was broken and needed fixing. Whether Obamacare is going to ultimately do much fixing is open to conjecture at this point. However, in my opinion, there were four main items that needed to be corrected. Not two or three thousand items but four main items. Insurance companies clearly weren’t willing to fix these four items. Up until 2010, the federal government wasn’t really willing to fix them either because they could have passed specialized legislation to fix each problem at any time.

First, most individual and group health plans had annual and lifetime limits built into the plan. If the individual’s medical billing costs exceeded the annual or lifetime limits, the individual simply received a letter in the mail eliminating the coverage. The individual, most likely, didn’t stop incurring medical expenses. After all, he or she had to be in bad health in order to reach the limits. The individual is put into a difficult situation and often that situation ended in bankruptcy. Second, insurance companies could refuse coverage to anyone based on a pre-existing condition of the applicant. Guaranteed coverage was almost non-existent. Individuals who developed a “condition”, such as cancer, that were fortunate enough to have insurance through an employer were almost forced to remain with that employer because moving to a new employer meant having to qualify for insurance through that new employer. The new insurance company could refuse to cover the person because of the condition. Those people who lost coverage because of the lifetime limits were also unable to get new coverage because of their pre-existing condition. I think that is called a Catch-22. Third, insurance companies could set rates based on the health and gender of an applicant. If the individual was fortunate enough to get coverage, he or she might not be able to afford that coverage because of a high premium associated with poor health or gender of that applicant. Fourth, older young adults not claimed on their parent’s tax return did not qualify to remain under their parent’s coverage and had to purchase their own policy. The problem was the young adult quite often couldn’t afford to pay for a policy.

These are four big issues, among many, that Obamacare does attempt to fix. First, insurance companies can no longer impose annual or lifetime benefit limits. No more letters in the mail with a corresponding loss of coverage. Second, a company can no longer refuse coverage because of a pre-existing condition. Individuals with a condition are still entitled to coverage and insurance companies cannot refuse to cover them because of that condition. Third, companies can no longer charge more based on the health or gender of a person. The company is allowed to charge a higher premium due to the age of the insured, tobacco usage of the insured, the family size of the insured and the part of the country in which the insured is located. Fourth, young adults are now able to remain on their parent’s policy until they reach 26 years of age regardless of whether the young adult qualifies to be claimed on the federal return of the parent as a dependent. Fixing these four items was a good thing and most people agree with statement.

So why do a majority of Americans believe that Obamacare is an over-reach by the federal government? In fact, the federal government itself seems to be waffling on this issue since many of the business provisions of Obamacare that were to take effect in 2014 have been postponed until 2015. In addition, many large businesses have successfully lobbied for an exemption from Obamacare. It appears that a business that has a lobbyist or is a friend of a Senator or Representative is able to receive an exemption. A business without a lobbyist that has no friends in Congress is not able to receive an exemption. It sounds like the “good old boy” way of doing business is very healthy in Washington D.C. That doesn’t set well with the majority of Americans. Obamacare, in its present form, is viewed as a huge power grab by the federal government. It’s a well-intentioned power grab because the system needs fixing but it’s still a power grab and there is no guarantee, with or without many adjustments, that Obamacare will be able to cure the “conditions” in our present system. Even though many of the business provisions were postponed, the individual provisions have not been postponed and no individual that I know of has received an exemption either. Beginning on October 1, 2013, individuals can begin to purchase policies with coverage beginning on January 1, 2014. Next week, I will review the options available to individual taxpayers. This is Jerry Coon signing off.

 

Jerry Coon is an Enrolled Agent and

a Registered Tax Return Preparer.

He owns Action Tax Service on

Northland Dr. in Rockford.

Contact Jerry through his website:

www.actiontaxservice.com

 

 

 

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