Archer Medical Savings Account Msa

Supreme Court upholds health care law.

In a much-anticipated decision, the U.S. Supreme Court declared the
mandate in
IRC

 Sec. 5000A, requiring U.S. citizens and legal residents
to maintain minimum essential health coverage, to be a permissible
exercise of Congress’s taxing powers under the Constitution
(National Federation of Independent Business v. Sebdius, Sup. Ct. Dkt.
No. 11-393 (U.S. 6/28/12)).

The court, in a 5-4 decision, held that the payments required of
individuals who do not maintain minimum health coverage under the
“individual mandate” were not a penalty, but are a tax and are
allowed under Congress’s power to tax in Article 1 of the
Constitution. This means they are constitutional, even though a majority
of the justices found that the individual mandate went beyond
Congress’s powers under the Commerce Clause.

The entire act was upheld, although the Court did limit the federal
government’s power to terminate states’ Medicaid funds. The
Court held that the Medicaid portion of the Patient Protection and
Affordable Care Act, PL. 111-148 (the Patient Protection Act), which
requires states to accept an enormous expansion in the number of people
they cover under the program or face a cut of all Medicaid funds, was
unconstitutional as enacted, but found that a severability clause in the
law allowed it to go forward without the threat of the loss of all
Medicaid funds.

SHARED RESPONSIBILITY PAYMENT IS A TAX

Although the individual mandate’s “shared responsibility
payment” in Sec. 5000A is labeled a penalty, not a tax, the Court
held it is a tax for purposes of determining its constitutionality, and
ultimately upheld it as a valid exercise of Congress’s power to
tax.

Chief Justice John Roberts concluded that the individual mandate
must be construed as imposing a tax on those who do not have health
insurance, if such a construction is reasonable, because “every
reasonable construction must be resorted to, in order to save a statute
from unconstitutionality” (Hooper v. California, 155 U.S. 648
(1895)).

The Court held that the individual mandate was within
Congress’s power under the Constitution’s Taxing Clause. The
Court concluded that the individual mandate is not a legal command to
buy insurance, but rather a tax on the choice to forgo buying insurance.
It does not apply to people who are not required to file income tax
returns. The fact that the Patient Protection Act calls it a penalty
instead of a tax was not controlling, the Court said.

PROVISIONS IN THE HEALTH CARE LAW

Several health-care-related elements of 2010’s health care
reform legislation (the Patient Protection Act and the Health Care and
Education Reconciliation Act of 2010, P.L. 111-152 (the Reconciliation
Act)) are already in effect, and the Court’s decision allows them
to continue. These include a temporary high-risk pool for individuals
with preexisting health conditions, a prohibition on lifetime dollar
limits for essential benefits in insurance policies, and a requirement
that dependents be allowed to stay on their parents’ health
coverage until they turn 26. In addition, insurers are prohibited from
excluding preexisting conditions for children under age 19 and, starting
in 2014, will be prohibited from discriminating against any individual
based on a preexisting medical condition. Also in 2014, states will be
required to establish health insurance exchanges, and the insurance
premiums of individuals in households with income up to 400% of the
poverty line will be subsidized.

Other key health-related provisions that go hand in hand with the
individual health insurance mandate are:

* Guaranteed issue: A requirement that health insurers sell
coverage to anyone regardless of health status;

* Community rating: A requirement that people in the same age group
pay the same premium regardless of health status; and

* Employer responsibility: A requirement that every company with a
workforce of at least 50 full-time-equivalent employees offer affordable
health insurance to its employees.

[ILLUSTRATION OMITTED]

TAX PROVISIONS

In addition to making sweeping changes to the U.S. health care
system, the health care reform legislation added a number of new taxes
and made various other revenue-increasing changes to the Code to help
finance health care reform. The legislation also made several
health-care-related changes to the Code to benefit certain taxpayers,
including a credit to offset part of the costs of health insurance for
low- to middle-income individuals and families and a credit to offset
part of the costs to small businesses of providing health insurance for
their employees.

Here is a list of tax-related items from the health care reform
legislation–in addition to the Sec. 5000A individual health care
mandate–that were upheld as a result of the Court’s decision:

Premium-assistance credit (Sec. 36B). Refundable tax credits that
eligible taxpayers can use to help cover the cost of health insurance
premiums for individuals and families who purchase health insurance
through a state health benefit exchange. (Effective 2014.)

Small business tax credit (Sec. 45R). Small businesses–defined as
businesses with 25 or fewer employees and average annual wages of
$50,000 or less–are eligible for a credit of up to 50% of nonelective
contributions the businesses make on behalf of their employees for
insurance premiums. (Effective 2010.)

Tax-exempt health insurers. Program administered by the
Department
of Health and Human Services

 that will foster the creation of qualified
nonprofit health insurance issuers to offer health insurance.

Reporting requirements (Sec. 6055). Requires insurers (including
employers who self-insure) that provide minimum essential coverage to
any individual during a calendar year to report certain health insurance
coverage information to both the covered individual and to the
IRS

.
(Effective 2014.)

Medical care
itemized deduction

 threshold (Sec. 213). Threshold for
the itemized deduction for unreimbursed medical expenses is increased
from 7.5% of adjusted gross income (
AGI

) to 10% of AGI for regular
income tax purposes. (Effective 2013 generally, 2017 for certain
taxpayers.)

Cafeteria plans (Sec. 125). A qualified health plan offered through
a health insurance exchange is a qualified benefit under a
cafeteria
plan

 of a qualified employer. (Effective 2014.)

Additional hospital insurance tax on high-income taxpayers (Sec.
3101). Employee portion of the Medicare hospital insurance tax part of

FICA

abbr.
Federal Insurance Contributions Act

Noun 1. FICA – a tax on employees and employers that is used to fund the Social Security system
income tax – a personal tax levied on annual income


 is increased by 0.9% on wages that exceed a threshold amount.
(Effective 2013.)

Employer responsibility (Sec. 4980H). An “applicable large
employer” that does not offer coverage for all its full-time
employees, offers minimum essential coverage that is
unaffordable
  
adj.
Too expensive:


un
, or
offers minimum essential coverage that consists of a plan under which
the plan’s share of the total allowed cost of benefits is less than
60% is required to pay a penalty if any full-time employee is certified
to the employer as having purchased health insurance through a state
exchange with respect to which a tax credit or cost-sharing reduction is
allowed or paid to the employee. (Effective 2014.)

Adult dependent insurance coverage. Changed the definition of
“dependent” for purposes of Sec. 105(b) (excluding from income
amounts received under a health insurance plan) to include amounts
expended for the medical care of any child of the taxpayer who has not
yet reached age 27. The same change was made in Sec. 162(1)(1) for
purposes of the self-employed health insurance deduction, in Sec.
501(c)(9) for purposes of benefits provided to members of a
VEBA

, and in
Sec. 401(h) for benefits for retirees. (Effective 2010.)

Health flexible spending arrangements (FSAs) (Sec. 125(i)). Maximum
amount available for reimbursement of incurred medical expenses under a
health
FSA

FSA Farm Service Agency
FSA Financial Services Agency  
 for a plan year (or other 12-month coverage period) must not
exceed $2,500. (Effective 2013.)

Expansion of
adoption credit

, adoption-assistance programs. Maximum
adoption credit was increased and, for adoption-assistance programs, the
maximum exclusion was increased. (Effective 2010; scheduled to expire at
end of 2012.)

Medicare tax on investment income (Sec. 1411). Imposes a tax on
individuals equal to 3.8% of the lesser of the individual’s net
investment income for the year or the amount by which the
individual’s modified AGI exceeds a threshold. (Effective 2013.)

Codification

 of the economic-substance doctrine (Sec. 7701(o)).
Codifies the judicially created economic-substance doctrine and makes
underpayments due to transactions that do not have economic substance
subject to the Sec. 6662 accuracy-related penalty (Effective 2010.)

Fees on health plans (Sec. 4375). Fee is imposed on each specified
health insurance policy (Effective Oct. 2012.)

Excise tax

 on high-cost employer plans (Sec. 49801). Excise tax is
imposed on coverage providers if the aggregate value of
employer-sponsored health insurance coverage for an employee (including,
for purposes of the provision, any former employee, surviving spouse,
and any other primary insured individual) exceeds a threshold amount.
(Effective 2018.)

Tax on
health savings account

 (HSA) distributions (Sec. 223).
Additional tax on distributions from an HSA or an Archer
medical savings
account

 (MSA) that are not used for qualified medical expenses is
increased to 20% of the disbursed amount. (Effective 2011.)

Tax on indoor tanning services (Sec. 5000B). Imposes a 10% tax on
amounts paid for indoor tanning services. (Effective 2010.)

SIMPLE cafeteria plans for small business (Sec. 125). An eligible
small employer is provided with a
safe harbor

 from the nondiscrimination
requirements for cafeteria plans as well as from the nondiscrimination
requirements for specified qualified benefits offered under a cafeteria
plan. (Effective 2011.)

Charitable hospitals (Secs. 501(r) and 6033(b)(15)). New
requirements apply to Sec. 501(c)(3) hospitals, regarding conducting a
community health needs assessment, adopting a written
financial-assistance policy, limitations on charges, and collection
activities. (Effective March 2010; community health needs assessment
effective March 2012.)

Information reporting (Sec. 6051(a) (14)). Requires employers to
disclose on each employee’s annual Form W-2 the value of the
employee’s health insurance coverage sponsored by the employer.
(Effective 2012.)

Return information disclosure (Sec. 6103). Allows the IRS, upon
written request of the
secretary of Health and Human Services

, to
disclose certain taxpayer return information if the taxpayer’s
income is relevant in determining the amount of the tax credit or
cost-sharing reduction, or eligibility for participation in the
specified state health subsidy programs. (Effective Match 2010.)

Annual fee on pharmaceutical manufacturers and importers. Fee
charged on each covered entity engaged in the business of manufacturing
or importing branded prescription drugs for sale to any specified
government program or pursuant to coverage under any such program.
(Effective 2011.)

Excise tax on medical device manufacturers (Sec. 4191). Tax equal
to 2.3% of the sale price is imposed on the sale of any taxable medical
device by the manufacturer, producer, or importer of the device.
(Effective 2013.)

Change to cellulosic
biofuel
  
n.
Fuel such as methane produced from renewable resources, especially plant biomass and treated municipal and industrial wastes.


bi
 producer credit (Sec. 40). Excludes
from the definition of cellulosic biofuel any fuels that (1) are more
than 4% (determined by weight) water and sediment in any combination or
(2) have an ash content of more than 1% (determined by weight)
(so-called black liquor). (Effective 2010.)

Deductions for federal subsidies for retiree prescription plans
(Sec. 139A). Eliminates the rule that the exclusion for subsidy payments
is not taken into account for purposes of determining whether a
deduction is allowable for retiree
prescription drug
 Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug,
 expenses.
(Effective 2013.)

Restrictions on use of HSA and FSA funds (Sec. 223). Amounts paid
for over-the-counter medications are no longer reimbursable from HSAs,
Archer MSAs, health FSAs, or health reimbursement arrangements.
(Effective 2011.)

Time for payment of corporate estimated taxes for 2014. For
corporations with assets of at least $1 billion (determined as of the
end of the preceding tax year),
estimated tax

 payments due in July,
August, or September 2014 were increased.

Expanded 1099 reporting. This change was repealed by the
Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy
Overpayments Act of 2011, P.L. 112-9.

by Sally P. Schreiber, J.D, and Alistair M. Nevius, J.D.

Sally P. Schreiber is a JofA senior editor and Alistair M. Nevius
is the JofA’s editor-in-chief, tax. To comment on this article or
to suggest an idea for another article, contact Nevius at
anevius@aicpa.org or 919-402-4052.