Financial Perspectives: What is really changing with the health care law?

NEast Philly is on vacation this week, and is posting in limited capacity. Here’s the latest column from certified financial planner Jim Heisler:

By now you have heard about the Supreme Court decision regarding the President’s health care law. Whether or not you see the new mandate as a penalty or tax, there are some changes that you need to be aware of, as they may affect you.

First, the provisions of the law that have already taken effect include provisions that provide children with pre-existing conditions the ability to secure coverage; removal of lifetime caps on insurance coverage; children can remain on their parents plans until the age of 26; and a rebate to help those with Medicare Part D (prescription drug coverage) to pay for their drugs. Another popular provision will allow adults with pre-existing conditions to buy insurance through high-risk pools beginning in 2014.

There are a number of changes coming beginning on Jan. 1, 2013. A couple of the changes include increased Medicare tax rates by .9 percent for those who earn more than $200,000 per year. These same folks will also have to pay a 3.8 percent  tax on net investment income – income they earn from their investment portfolios. One of the most controversial provisions is the requirement that all Americans have coverage, and if they do not they will be penalized/taxed up to 2.5 percent of their income.

All individuals will see the tax deduction for health care costs increased to 10 percent of adjusted gross income from the current 7.5 percent. The government will offset these changes by offering tax credits to help families purchase health insurance, but this will not kick in until 2014.

The law also requires the development of Health Care Exchanges by 2014 that are supposed to allow individuals and small business to buy health insurance through competitive pools of insurance companies. This same program calls for small businesses to provide vouchers for their employees to buy coverage.

Finally, health care-related businesses are expected to experience ramifications as well, as the new law calls for the imposition of taxes and fees. This will affect insurance companies, pharmaceutical firms and medical device makers. Doctors are also expecting to experience a reduction in their income due to cuts in reimbursement rates.

It remains to be seen if the law will be overturned if Republican candidate Mitt Romney is successful in winning the election in November, but until then, you have to plan on the law remaining in effect. There are some major concerns that companies will abandon their health plans and simply pay the penalty, as it may be cheaper than maintaining coverage for their employees. Let’s hope this does not happen. You can ask your HR department how they are evaluating the new law and any initial thoughts they may have.

Good luck with your planning!

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 215-332-4968

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.


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