The Affordable Care Act: What You Need to Know
By: Jerold E. Rothkoff
To say the least, the Patient Protection and Affordable Care Act (the “Affordable Care Act”, “ACA” or “Obamacare”) has had a bumpy ride thus far. However, it is the law of the land, and will effect elder law and long-term care planning in a number of ways. For example, since New Jersey has agreed to accept the expansion of the Medicaid program, beginning in 2014, individuals under 65 with income below 133% of the Federal Poverty Level will be eligible for Medicaid without regard to their resources. (Pennsylvania’s proposed Medicaid expansion plan is awaiting federal approval). This hopefully will encourage primary care physicians to participate in the Medicaid program, giving individuals more options when choosing physicians.
Beginning in 2014, under the ACA, individuals retiring before age 65 will be able to obtain health insurance without pre-existing conditions exclusions. The removal of pre-existing conditions will have an important impact on the under age 65 disabled population, specifically, a potential change in special needs planning. A special needs trust, used to obtain or preserve Medicaid and SSI benefits, may no longer be necessary if the only reason for the trust is to obtain health insurance through Medicaid.
Obtaining coverage under the Health Insurance Marketplace, as opposed to COBRA, will become a more attractive option for retirees, as there is no time limit for coverage under the ACA, whereas COBRA coverage may extend no further than 18 months.
The ACA will also have an effect on taxes. Beginning in 2013, individuals must pay an additional .09% Medicare tax on earned income in excess of $200,000 for an individual, $250,000 for married couples filing jointly, or $125,000 for married couples filing separately. These figures may seem like very high income for a retiree. However, consider an individual who has a $150,000 IRA who will be liquidating the account to qualify for VA or Medicaid benefits to assist in paying for long-term care expenses. The liquidation of the full IRA account in the same calendar will create an immediate $150,000 in taxable income.
Additionally, a 3.8% unearned income Medicare tax will apply to all or a portion of the net investment income of certain individuals, estates, and trusts. The threshold for tax deductibility of unreimbursed medical expenses will also increase, from 7 ½% to 10% of an individual or couple’s adjusted gross income.
As we look ahead, it is important to keep the ACA in mind when engaging in long-term care or retirement planning.