Wednesday, December 5, 2012

The Fiscal Cliff

What we know about the so-called fiscal cliff is this: Come January, if Congress and the White House don’t agree on a fix, $607 billion in automatic annual tax increases and spending cuts kick in What we don’t know is what exactly that means for your wallet.

If lawmakers can’t get their act together before Dec. 31 and the U.S. goes off the cliff. Under that scenario, the tax bill of a person earning $50,000 and filing as a head of household will go up by $1,635. A married couple earning $80,000 and filing jointly will see their tax bill spike by $3,517.

The calculator put out by the Tax Foundation, a Washington think tank, estimates how people will fare under three scenarios that are being negotiated in Congress. The first scenario is that we tumble off the fiscal cliff and the Bush tax cuts automatically expire. The

second is the Republican scenario, which assumes lawmakers avert the cliff and there’s a permanent extension of the Bush tax cuts. The third scenario, Obama’s proposal, assumes that the cliff is avoided, the Bush tax cuts expire for the highest earners but not for everyone else, the payroll tax holiday for employees gets extended one more year, and the Buffett Rule goes into effect. According to this calculator, a single person earning $50,000 will pay an effective tax rate of 21 percent ($10,313 in taxes) if the U.S. goes off the cliff, 20 percent ($9,753) under the Republican proposal, and 18 percent ($8,753) under the White House plan. This calculator also has features that will please the die-hard wonks who want to tool around with even more complicated outcomes.

Paycheck City, a website that compiles payroll calculators, has its own fiscal cliff scenario tool. This tool (above) is the most visually appealing but is really intended for employers making payroll decisions.

The Tax Policy Center’s calculator says it’s for the general public, but only people whose jobs require that they know the ins and outs of the budget negotiations in detail should brave this one. If you’re an accountant, congressional staffer, journalist, or just a glutton for pain, this tool is great, because it offers a ready-made cheat sheet on the Republican and White House tax plans.

For everyone else, stick to the calculator on As it is, this stuff is already headache-inducing.

While the concept behind these tools is commendable—this may be, after all, the most complicated budget negotiation since the Stamp Act—they dramatically oversimplify what’s actually at stake here. For one, they tell people how their tax bill might change but don’t capture the other side of the cliff ledger: spending cuts. If you work for a defense contractor, your job may be wiped out by a contract being severed. Ditto for teachers if education spending cuts kick in. And if the tax code gets restructured entirely, these calculators will be moot. There a lot of moving parts in this game, and it’s nearly impossible to keep track of them all.

Friday, November 16, 2012

How the Health Insurance Mandate Penalty Works

How the Health Insurance Mandate Penalty Works

Beginning with their 2014 Federal Taxes, many consumers who can afford health insurance but decide not to buy it will owe penalties to the IRS when they file their taxes in the spring of 2015. There will be constant efforts to overturn this and other provisions of the Affordable Care Act (ACA), also referred to as Obamacare. But the Supreme Court decision to uphold the law's constitutionality has greatly increased the odds that the so-called individual mandate to have health insurance will be implemented over the next two years.

The nonpartisan Congressional Budget Office (CBO) has estimated that roughly four million people will choose to pay a penalty each year instead of buying helath insurance . This group is expected to be dominated by younger Americans without children who feel they are healthy enough to forego insurance. Those penalties will be small in 2014 and 2015 before rising to their full levels in 2016.

Due to expected confusion in the early years of the program, more people may face penalties. But it's unclear what will happen if they don't pay them. The ACA forbids the IRS from aggressive efforts to collect the penalty from people who don't pay. The biggest stick the agency may have is to withhold tax refunds from those who owe penalties.

Insurers are required to send out notices of health coverage that will, over time, become as routine as a taxpayer's W-2 statement of taxable wages. The 2014 notices are due to consumers and the IRS by Jan. 30, 2015. But this process may experience its own learning curve, and few people are predicting that a flawless reporting system will be in place right away.

The three major parts of the individual mandate rules are 1) understanding the non-financial grounds on which people are excluded from having to get insurance; 2) the income provisions affecting the need to be insured, and 3) the penalties themselves.

Non-Financial Exclusions

The mandate is designed to apply to people who make enough money to buy private health insurance but choose not to be insured either on their employer's plan, in the individual market, or through the insurance exchanges that must be set up in each state under the law. It does not apply to Americans age 65 and up who are covered by Medicare.

There is a long list of people who do not have health insurance but will not face a penalty on non-financial grounds:

• between jobs and without insurance for up to three months

• have religious objections

• are an undocumented immigrant

• are in jail

• are a member of an Indian tribe

Income Provisions

The financial tests to avoid a penalty include having family income that is too low to require filing a federal tax return. Using 2010 rules, this would be less than $9,350 for an individual and $18,700 for a family.

Higher-earning households may also be exempted from penalties for not buying health insurance if their out-of-pocket cost for private health insurance is more than 8 percent of their taxable income. This amount is for any additional cost after subtracting employer healthcare insurance contributions.

It is also after reflecting any health insurance subsidies available as tax credits through the state insurance exchanges being created by the act. A Report from the CBO and the staff of the congressional Joint Committee on Taxation last March estimated that consumers who qualify for subsidies using the state exchanges will receive an average benefit of $4,780 in 2014, $5,040 in 2015, and $5,210 in 2016. This benefit is mostly for the tax credits but also includes other support items, according to a Treasury Department spokeswoman.

Those credits are keyed to the nation's financial poverty guidelines. These are set each year by the government and adjusted annually based on changes in the consumer price index. The exchanges will offer a sliding scale of insurance subsidies that extend to incomes as high as four times the poverty guidelines.

The guidelines for 2012 begin at $11,170 for one person and increase by $3,960 for each additional person in the household. For a family of four, the 2012 guideline is $23,050. Tax credits for buying health insurance would be available for four-person households with taxable earnings up to 400 percent of that level, or $92,200. (The size of a household is determined by how many people are included on the head of household's tax return.)

So, to avoid a penalty for not buying insurance, a household would have to determine the annual premiums on one of the lowest-quality plans in a state exchange, figure out how much of a tax credit their income would entitle them to, and then calculate if the resulting out-of-pocket expense was more than 8 percent of their household's modified adjusted gross income. If it was, they would not pay a penalty if they decided not to buy health insurance.

The Penalties

The actual Mandate penalties under the ACA are perhaps the easiest part of the program to understand:

In 2014, the annual penalty will be $95 per adult and $47.50 per child, up to a family maximum of $285 or 1 percent of family income, whichever is greater.

In 2015, the penalty will be $325 per adult and $162.50 per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater.

In 2016, the penalty will be $695 per adult and $347.50 per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater.

"Most people think of it as an annual penalty," notes Larry Levitt, a senior vice president at Kaiser. "But it is in fact a monthly thing, and you would pay a penalty for any month that you are uncovered." However, a person may be without coverage for up to three months without triggering the penalty

Thursday, November 15, 2012

Employer Mandate

The Employer Mandate

ObamaCare’s employer mandate is among the new laws most anti-growth provisions. When implemented, it will force most American businesses to offer government-approved health insurance to their employees or else pay new federal taxes for not doing so. This costly new requirement will make it more expensive for firms to hire workers in the future. Consequently, it will destroy jobs, and many firms are likely to slow down on hiring in anticipation of its implementation.

“Free-Rider” Provision

ObamaCare does not impose a straight-forward requirement that employers offer health insurance to workers. Proponents of the new law wanted to avoid the charge that the new law was directly imposing new costs on American business. So, instead, they created a back-door mandate, what they call the “free-rider” provision.

If a firm with at least 50 workers has a full-time employee who is getting federally-subsided insurance through an ”exchange,” then that employer must pay a penalty for failing to offer that worker acceptable insurance on the job. (Workers that are offered qualified coverage by an employer are ineligible for the new insurance subsidies provided in the exchanges.)

The tax is scheduled to begin in 2014 and the Congressional Budget Office estimates it will bring in approximately $10 billion in annual revenue once it’s fully implemented.

Penalties For Failure To Insure

For firms which do not offer insurance any insurance, have more than 50 employees, and have at least one employee receiving insurance subsidies, they must pay a tax of $2000 per subsidized employee. The tax is applied to all of a firm’s employees (after excluding the first 30), not just those that are subsidized. For example a firm with 51 employees would pay $42,000 in new annual taxes, and an additional $2,000 tax for every new hire.

For firms that do offer insurance, the penalty is the lesser of $2,000 for every employee (after exempting the first 30) or $3,000) for every employee receiving a subsidy.
Disincentives to Hire

ObamaCare’s employer mandate will discourage business development and growth. Small firms with 50 or fewer workers will have very strong disincentives to expand. These businesses can avoid the new penalties by staying small; growth will simply add new costs and burdens. Many businesses with low profit margins are unable to pay the substantial cost of providing comprehensive insurance to all of their employees or the new taxes under ObamaCare’s employer mandate. Once companies reach 50 employees, they are likely to turn to contractors and outsource work to evade the new mandate, even if such arrangements are less efficient than directly hiring new workers.

Part-Time and Seasonal Employees

Fines to employers under the employer mandate also are imposed on workers who are not full-time employees, where a combination of employees working 120 hours per month (around 30 hours per week) count as one employee. This provision in the bill especially hurts seasonal businesses, where it is frequently not cost effective to provide insurance benefits to an employee who will only be with the firm for a short period of time.

Penalizing Low Income Households

ObamaCare provides strong incentives for firms to avoid hiring workers from low-income households. Eligibility for subsidized insurance in the exchanges is based on household income, and firms can be penalized if one of their workers gets subsidized coverage in an exchange. Thus, firms have a strong incentive to find workers who won’t qualify for subsidized coverage, which may also lead to invasions of privacy. For instance, a restaurant might find it better to hire young waiters from upper-income neighborhoods, as opposed to low-income areas, because they would be less likely to qualify for subsidized insurance in the exchanges. ObamaCare therefore is penalizing the very households it was supposedly passed to help.


Tuesday, October 19, 2010

Obamacares New Trillion Dollar Entitlement Goes into Effect 1/1/2011

Obamacares New Trillion Dollar Entitlement Goes into Effect 1/1/2011
Hidden back in section 8002 of ObamaCare is a new Long Term Care insurance entitlement that every American that collects or issues a pay check will be affected by in the coming months. It was placed in the ObamaCare program to make ObamaCare look almost a $100 Billion Dollars cheaper than it really is. The program is called the Community Living Assistance Services and Support Program or (Class Act for short). Even the Chairman of the Senate Budget Committee (Senator Kent Conrad D-ND) called it “a Ponzi Scheme of the first order, the kind of thing that Bernie Madoff would have been proud of”
The Obamacare Budget Tricks.
The program creates a trust fund, called the CLASS Independence Trust Fund. However premiums paid will not be deposited into the fund at all. Instead, our government will use the money it collects on other un funded programs, essential borrowing the money from the trust fund just like the Social Security Trust Fund (It will be pact full of IOU’s) but no real money. For the first five years (2012–2016), the program will collect premiums, but pay no benefits because you have to be in the program for 5 year to be vested and receive any kind of benefit. Therefore Incoming premiums will be greater than the benefits paid out because there can’t be any claims in the first 5 years; this allowed the CBO to reduce the 10-year projected cost (2010–2019) of Obamacare by almost $100 Billion Dollars. However, these cost savings are factious because the premiums cannot be saved to fund future benefits and also used to pay for health insurance subsidies and Medicaid expansion. I know I can’t budget the same dollar twice but apparently Obamacare can. Even the Center for Medicare Services is estimating that the benefits will exceed premiums as soon as 2025. Everyone look forward to another bailout!
Government Price Setting
The CLASS act directs the Secretary of Health and Human Services (HHS) to come up with three separate benefit plans. The secretary then will choose one of the plans for everyone, (yep one size fits all) which will be called the Independence Benefit Plan. An analysis will then be conducted to estimate the costs necessary to maintain the program for 75 years. The Costs will be looked at annually and the premiums will then be adjusted (which means go up). The goal is to finance the program from premiums a lot like the free and open market does. However Underwriting and risk adjustment are prohibited in the federal program, and initial premiums will vary by age at time of enrollment. All Employers will be asked starting in January 2011 to participate in the program and if they chose to be part of the program all employees will automatically be enrolled into the program unless they opt out. The initial problem with this is no one really has an idea of what the federal program is going to cost. Currently the estimates are running from a $150 a month to over $350 a month. Right now you can get a quote from every LTC company in the nation on the open market at almost half of what the government’s estimated premiums are.

After being in the program for 5 years a person can receive CLASS benefits if he or she has a functional limitation that is expected to be for a period of at least 90 days and has been confirmed by a licensed health care practitioner. The HHS Secretary will determine the minimum standard: which means what that functional limitation is and how much money the insured could collect. Benefits will be paid in cash and are allowed to vary based on the limitation which means whatever the HHS Secretary decides are appropriate. The program’s minimum daily cash benefit is $50, indexed to the Consumer Price Index. So far we have learned that the HHS will determine what the cost will be that can vary by the year and then when an insured makes a claim the HHS will determine after the fact what if any benefit is actually paid. Well this sure doesn’t sounds like any insurance contract I have ever read and I’ve read thousands.

Better Alternatives. Private LTC insurance plans will offer smaller premiums for individuals who are a bit healthier. Programs offered in the private insurance market will be better than the federal program for many reasons. First, the government will offer only one plan, while in the private insurance market an individual can choose between hundreds of plans and options. Secondly, an individual does not have to work for five consecutive years for private LTC insurance. The CLASS Act also does not say what will happen to an insured’s contributions if they become disabled before paying the 5 years of premiums required to qualify for benefits. Third, an individual in the private insurance market does not have to be employed to purchase coverage. The CLASS Act is also ambiguous at best about what will happen if an individual pays premiums for many years, but then becomes unemployed for any period of time. Fourth, unlike the federal program in which unused benefits terminate at the end of every year, in most private insurance plans unused benefits are carried over year after year and there are even some who offer the return of premiums if benefits are not used . Lastly because the federal program does not meet the minimum benefit criteria set by the State Long Term Care Partnership plans the total amount of any benefits purchased will not exempt the insures assets from the Medicaid spend down laws thus allowing Medicaid to still take control of the insured’s assets for reimbursement. In comparison, I ran a few quotes at and the average daily benefit in the private LTC insurance market is ($150) which is three times higher and does not vary by limitation like the federal plan.. The majority of private LTC insurance plans offer benefit far exceeding the class benefits at a fraction of the cost
Below is an example of a client quote I ran on 10/18/2010
66 year old couple and the cost was $258 a month guaranteed for 10 yrs and $400,000 of LTC benefits at $140 a day. And the best part of all the couple qualified for a tax deduction of 100% or their premiums totaling $3096.00

Friday, March 13, 2009

The Danger of President Obama’s Insurance for Children (SCHIP)

TAMPA, 3/10/2009 -- Democrats are moving quickly to socialize American health care with the SCHIP expansion. Michael Tanner of the CATO Institute whined, “Shouldn’t we at least talk about it?” The cost to the federal taxpayers is enormous and President Obama has promised to reduce funding in Medicare to help pay for SCHIP’s expansion. Representative Steven King (R-IA) labels SCHIP expansion, “A Cornerstone for Socialized Medicine.”

The biggest problem with SCHIP is the danger to children who sign up for it. Million of children have been terminated off of their SCHIP insurance on their 19th birthday regardless of their medical history. Ron Greiner of warns, “My daughter has MS and the medication alone is $2,500 a month or $30,000 per year. You want insurance on your child that is permanent and portable with a high lifetime maximum benefit of at least $5,000,000.”

Millions of children are expected to switch to SCHIP from their parents’ employer-based insurance. Some employers charge workers $400 a month to insure a child. Ron said, “Employer insurance is too expensive. In Tampa, HSA ‘Individual Insurance’ for a child is less than $50 a month that pays 100% after the deductible on covered inpatient, outpatient and prescription drugs. Like many HSA plans it has a $0 deductible for preventative services.” In Des Moines a child can enroll on permanent HSA insurance for less than $40 a month. Parents can call 877-Save101 to determine their child’s cost.

Ron believes parents don’t need government to have a plan. He tells parents, “Insurance for children is inexpensive. Parents that choose SCHIP are gambling that their child won’t get sick or hurt.” specializes in HSA insurance for the self employed. Many families have HSA health insurance for less than $200 a month, then they grow their savings in their HSA. Ron says, “The HSA is great way to save because the HSA enjoys tax free deposits, growth and withdrawals. IRAs and 401Ks are old taxed accounts. Some people save more each year in taxes, with their HSA, than the cost of their insurance!” enrolled America’s 1st tax free HSA in 1996 when they were called MSAs. is the internet presence of Insurance Processing Corporation (IPC). Not all products are available in all states. Medical underwriting is required.

Reform has begun at