2010 Health Care Act Highlights

April 2010

Tax Planning & Practice Guide

Highlights of the Tax and Benefits Provisions of the 2010 HealthCare Act as Amended by the 2010 Health Care Reconciliation Act

After a protracted debate, Congress has passed and the President has signed into law a sweeping new health reform law, consisting of H.R. 3590, the Patient Protection and Affordable CareAct (Health Care Act, PL 111-148, 03/23/2010), and H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (ReconciliationAct, P.L. 111-152, 03/30/2010).

The centerpiece of the new health reform law is the mandate for most residents of the U.S. to obtain health insurance. This mandate carries with it a host of new tax rules, such as new penalties for individuals who choose to remain uninsured, tax credits and other sweeteners for participating in new insurance coverages, new penalties for larger employers that don’t provide insurance (or provide coverage deemed inadequate or unaffordable), plus a voucher system for certain lower income employees who choose not to be covered by the company health plan. Additionally, the definition of who is a dependent for employer health plan (and other purposes) has been expanded.

The new health reform law pays for its cost in a number of ways, including taxes, penalties and tougher rules for health care related exclusions and deductions. These include a surtax on “Cadillac”employer health plans, higher HI taxes on wages, an “unearned income Medicare contribution” surtax, tougher limits on medical expense deductions, and a new limit on health FSA contributions under cafeteria plans. The new health reform law also imposes a number of industry specific revenue raisers and toughened rules, such as a new executive compensation deduction limit for insurance providers, and annual fees for pharmaceutical companies, manufacturers and importers of medical devices, and health insurance providers. Other revenue raisers have no connection at all to health-related topics, such as codification of the economic substance doctrine and imposition of related penalties, a new rule requiring information reporting for payments to corporations, elimination of a credit for “black liquor” and estimated tax changes for large corporations.

Finally, the new health reform law also creates brand-new tax breaks, such as a “simple” cafeteria option for small businesses, liberalized adoption credit and adoption assistance rules, a new tax credit to stimulate new therapeutic discovery projects, and a new exclusion for certain health professionals.

This Tax Planning & Practice Guide highlights the tax and benefits provisions in the 2010 Health Care Act as Amended by the 2010 Health Care ReconciliationAct, with citations to the Acts and the applicable Code sections affected by them, plus observations and illustrations illustrating the new health reform law’s practical consequences.

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