2013 Changes to Medicare & Medicaid

On January 1, several important changes to Medicare and Medicaid mandated by the Patient Protection and Affordable Care Act (PPACA) took effect.

This Legislative Alert provides a brief update of many of those changes. For any specific legal or financial advice, it is recommended that you consult with a licensed professional in your state.

Medicare Tax Increase

Beginning on January 1, employers must withhold an additional 0.9 percent Medicare tax from employee paychecks with incomes over certain thresholds.
See the questions below to learn more.

Increasing Medicaid Payments for Primary Care Doctors

Beginning in 2013, the federal government is increasing Medicaid payment rates to primary care physicians. This increase is in response to Medicaid programs preparing to cover more patients. In 2013, the Medicaid payment rates are being increased to at least 100 percent of associated Medicare rates. From 2011 to 2015, the federal government will also provide funding to Medicare to provide a 10 percent bonus payment for primary care provided by qualified physicians. However, it should be noted that Medicare and Medicaid reimbursements are typically lower than private payer reimbursement rates.

Expanded Authority to Bundle Medicare Payments

To encourage hospitals, doctors and other providers to work together, PPACA allows for payment bundling. This means hospitals, doctors and providers are paid a flat rate for an episode of care rather than the current fragmented system where each service or test is billed separately to Medicare.
These are only some of the changes that will be implemented in 2013. We will continue to keep you apprised of changes as they occur, and will tell you what you need to know to remain compliant with PPACA.

Q.When are employees or individuals subject to the tax?

A. If an employee or individual’s wages, compensation, or self-employment income is above certain thresholds, the person will be subject to the increased tax. The tax will apply to wages and compensation above the following thresholds:

Filing Status

Threshold Amount

Married Filing Jointly $250,000
Married Filing Separately $125,000
Single $200,000
Head of Household (with qualifying person) $200,000
Qualifying widow(er) with dependent child $200,000

Q.What wages are subject to the tax?

A. Any wages that are currently subject to the Medicare tax will be affected by the tax increase.

Q. Does an employer have to withhold the additional tax from my employee’s wages?

A.Yes. An employer must withhold the additional tax from wages paid to an individual in excess of the $200,000 amount regardless of the individual’s filing status or wages paid by another employer.

Q. If an employee surpasses the threshold limit via multiple sources of income, can the employee request additional withholding from his employer?

A. Not specifically for the purpose of the additional Medicare tax. If an employee anticipates that their total income will surpass the threshold, but not through a single employer, the employee may request the employer withhold an additional amount of income withholding on IRS Form W-4. The additional income tax withholding will then be applied against the employee’s taxes as shown on their tax return, including any additional Medicare tax liability.
The employee also may make estimated tax payments if the employee believes that he or she will exceed the threshold via multiple sources of income.

Q. If an employee or individual makes over $200,000 annually, files jointly with his or her spouse, and the couple makes less than $250,000, can the employee ask the employer to stop withholding the additional tax?

A. No. The employer must withhold the additional tax amount. However, the couple may claim credit for any additional Medicare tax liability against the total tax liability on your individual income tax return.

Q. Are employers required to match the amount of the additional Medicare tax?

A. No. Employers are not required to match the additional tax amount.
For more information on the increased Medicare tax, please see the following IRS Question and Answer page.

Q. How is the Employer Retiree Coverage Subsidy changing?

A. Prior to January 1, employers were eligible for a tax-free subsidy of 28 percent of the costs they incurred to provide a prescription drug benefit program to their retirees. This subsidy was authorized by the Medicare Modernization Act of 2003. Employers were also able to deduct any outlays made with these subsidies to provide retiree drug coverage for income tax purposes.
This year, employers may still receive the subsidy, but will not be able to deduct the cost of the prescription drugs to the extent reimbursed by the subsidy on federal tax returns.

Q. What types of coverage does this apply?

A. Prescription drug coverage that is actuarially equivalent to the coverage offered under Medicare Part D is eligible for the federal subsidy.

Q. Is this coverage included in taxable income?

A. The coverage is not included as taxable income. However, this change will eliminate the tax deduction to the extent of the subsidy received.

Q. What kind of impact will this change have on businesses?

A. Although the change just recently went into effect, a Towers Watson study estimated the total cost for U.S. corporate financial statements would be $14 billion if companies did not shift their retirees out of drug subsidy plans. An American Benefits Council study estimated that between 1.5 and 2 million retirees would have their drug coverage terminated because employers would be forced to shift them into Medicare Part D coverage.
The exact impact on businesses remains to be seen.

These changes and other uncertainties make it the perfect time to sit down and discuss with Lori how Royale Class can make a positive imapact on your business in 2013. Click here to schedule your time to meet with Lori.