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What health care reform means for consumers

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MADISON, Wis. (3/29/10)--Unless your annual income is more than $200,000 for a single person or $250,000 for couples, your Medicare payroll tax probably won’t change as a result of the health care reform President Barack Obama signed into law last week (CNNMoney 3/23/10). Affluent households will see their Medicare payroll tax bill go up. Right now that payroll tax is 2.9% on all wages, split between workers and their employers with each paying 1.45%. Starting in 2013, high-income consumers will pay another 0.9 percentage points, taking their share to 2.35% of wages, reports CNNMoney. For context, in 2008 about 4.5 million (3.8%) of all U.S. households earned more than $200,000, a number that may have dropped during last year's economic freefall and rising unemployment. High income consumers also would pay a new 3.8% Medicare tax on investment income, also starting in 2013. According to an analysis by Deloitte for CNN, consumers might not owe the full 3.8% on all their investment income: The tax applies to whichever is less--investment income or the amount that a person's modified adjusted gross income exceeds high-income thresholds. And while the new legislation is meant to provide access to health care for more than 31 million consumers who do not have coverage, the vast majority of Americans, who get coverage from their employers, will not see significant changes. An analysis by The New York Times (March 21) highlights these changes:
* Uninsured consumers who do not buy insurance would pay a penalty of $95 or 1% of income, whichever is more, the first year of coverage. The penalty could rise to as much as $695 or 2% of income. * Uninsured families below the income-tax filing thresholds would not pay anything, nor would people who can’t find a policy that costs less than 8% of their income. * Six months after enactment, many insurance plans would be blocked from placing lifetime limits on medical coverage and could not cancel policies of people who become ill. * Children with pre-existing conditions would not be denied coverage. * Parents could keep children on their health insurance plans until they are 26 years old. * People who have been locked out of the insurance market because of a pre-existing condition could get subsidized coverage through a new high-risk insurance program until 2014, when Medicaid and state-run insurance exchanges would kick in. * More lower-income consumers younger than 65 would be covered by Medicaid. A family of four earning less than $29,327, for example, would be eligible. * People earning more than $29,327 but less than $88,200 (for a family of four) would be eligible for premium subsidies. * Premiums would be capped at a percentage of income, from 3% to as high as 9.5%. * The so-called doughnut hole in Medicare prescription drug benefits--where millions of consumers now have to pay out of pocket--would be gone by 2020.
More changes become effective in 2014: Employers with 50 or more employees could face federal fines for not providing insurance coverage, and all lifetime and annual limits on coverage would be eliminated for people not able to get coverage through an employer. For more information, read “How to Keep Your Job When You Become Ill,” in the Home & Family Finance Resource Center.