More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- Scope of the Fiduciary Duty Owed by Investment Advisors A fiduciary obligation goes beyond the suitability standard typically owed by registered representatives of broker-dealer firms to clients. The relationship is built on the premise that the advisor will always do the right thing for the person or entity receiving advice.
President Barack Obama’s health care reform law, which takes effect Jan. 1, 2014, does not include a new government-run health plan–as most Americans erroneously believe–rather it seeks to ensure that virtually every American has health care coverage, and businesses and individuals have decisions to make, says analyst Andy Friedman of The Washington Update in his latest white paper, “Health Care Reform Takes Effect: What Choices do Businesses and Individuals Have?”
The latest research by the Congressional Budget Office estimates that the ACA will shrink the number of uninsureds by about half, from 60 million to 30 million, Friedman notes.
This reduction, he says, “will come at a cost to both the government and to affluent Americans,” as “a portion of the cost is funded by a new 3.8% tax on investment income received by families with adjusted gross income above $250,000.” The remaining cost “must be recouped through spending cuts–the law seeks to implement cuts in Medicare reimbursement amounts–additional taxes, or new government borrowing.”
In his paper, Friedman warns that, first and foremost, the Affordable Care Act–commonly referred to as Obamacare–is “complex,” and that businesses and individuals should consult with a financial advisor or qualified attorney to determine how the law impacts their specific circumstances.
But Friedman says that while the health care reform law is “massive,” at its core are five major initiatives that seek to ensure Americans have health care coverage:
- Employer Mandate: While employers are required to provide health insurance to their employees that meets certain minimum essential coverage requirements, and will have to pay a penalty for not doing so come 2015, they must also bear the brunt of providing such coverage. However, a worker may be required to contribute up to 9.5% of their income.
- Individual Mandate: Beginning Jan. 1, 2014, every American will have to be covered by health insurance that meets the minimum essential coverage requirements. Those not covered by an employer’s health care plan or via Medicare or Medicaid will have to purchase insurance, or pay a penalty for not doing so.
- Pre-Existing Conditions: The health care law prohibits insurance companies from denying coverage or charging higher premiums based on the state of an applicant’s health (pre-existing conditions).
- Exchanges: The law requires each state to set up an “exchange” or “marketplace”, an internet portal where people seeking insurance can get information about coverage options and fees. If a state fails to establish an exchange, the federal government will do so for the state. The exchanges are to be up and running by Oct. 1, 2013.
- Subsidies: Families with income between approximately $24,000 and $94,000 may receive a federal subsidy when they purchase insurance on an exchange. Workers eligible for employer-provided insurance coverage are not eligible to receive a subsidy.
Friedman notes that whether the mandates work to ensure that Americans have health insurance “will depend on the extent to which employers and individuals comply.”
For example, he says, an employer can avoid the mandate in three ways:
- Businesses with fewer than 50 employees are not subject to a penalty for failing to provide insurance to their employees. There is some concern that small businesses might choose to remain under 50 employees to avoid the mandate.
- Businesses are not required to provide insurance to part-time workers, defined as employees who work fewer than 30 hours per week. Some businesses already have indicated they will hold part-time workers to fewer than thirty hours to avoid the mandate.
- Some businesses that cannot take advantage of the above exceptions might choose to pay the penalty ($2,000 annually per employee) rather than provide insurance to their employee–which is much less expensive than paying for employee coverage. Employers might be less concerned about offering insurance now that their employees cannot be rejected for individual coverage.
Because time is of the essence, Friedman says that businesses must decide whether to provide employee insurance coverage in 2014, and, if so, whether also to provide family coverage.
Businesses, he says, “should also consider whether to scale back (or not increase) number of employees or hours for part time employees before the employer mandate becomes enforceable in 2015.”
For individuals, Freidman says that those who are not eligible to receive coverage from employers or under Medicare or Medicaid must decide by Jan. 1 whether to purchase coverage on the exchanges (perhaps with benefit of a subsidy) or allow the IRS to reduce tax refunds they would otherwise receive by the amount of the penalty for failing to do so.
“But young and healthy workers might choose to pay the penalty rather than purchase insurance,” he adds, as the maximum penalty is $2085 per family or 2.5% of taxable income, whichever is greater.”
Moreover, he says, “the IRS, which is charged with collecting the penalty, can do so only by a reducing a tax refund otherwise due. Thus, the penalty cannot be collected from people who pay no income tax (or who do not overpay their tax through estimated payments).”