Tax Consequences of Supreme Court Decision

[tpert]

A client called me and asked me for advice about his expected impact if The Health Care for America plan is declared unconstitutional.

If the plan is declared unconstitutional, his child will no longer be eligible for medical coverage which was only due to the raised age limits of Obamacare.

He is asking whether this would occur on the date the plan is declared unconstitutional (or retroactively) and what steps he needs to take. Does he need to apply for Cobra coverage? Does he need to have his child removed from employer coverage (employer requires notification that a dependent is ineligible within 10 days or he is subject to possible dismissal and coverage ends on the date ineligibility occurs).

I told him that he needs to talk to his employer about policy and how they are handling this change, but it is unclear to me whether the coverage of otherwise ineligible individuals would have any tax impact. If the law is declared unconstitutional, I doubt that prior coverage will retroactively become taxable, but what if the employer continues coverage through the end of the year?

Would I be correct in saying that if the employer allows the employee to continue this nondependent under 26 coverage after next week, that his contributions to the plan would become a post-tax deduction and any employer subsidy would be taxable?

Thanks.

[appelman]

It's all in limbo!

I don't think you can predict anything with any confidence at this point.

[dtlee]

A bit premature....

It seems to me that this is one of the provisions that the Supreme Court could rule is separately allowed to stand despite the potential unconstitutionality of the federal mandate. I am no expert here (or elsewhere for that matter), but I do not see how this provision is dependent on that mandate since it was put into affect long before the mandate was supposed to apply.

Your analysis sounds reasonable, but any conjecture is probably only that until we figure out how the Supreme Court rules and how Congress reacts. Even if the entire law is struck down, conceivably, this provision could be separately re-enacted, although our leaders would likely leave us in limbo until they finish their political gamesmanship.

[FEDUKE404]

Not today's concern

Your client is WAY ahead of the game....

Whatever SCOTUS does this week will have minimal/no immediate effect on his taxes and/or insurance costs.

I assume your client is not buying a policy for his child but instead is buying a policy/extra coverage for himself that covers the child. Correct?

The "age 26 rule" is a reasonably logical and valid approach to insurance offerings. It has a high popularity among the public in general.

Most people feel it will survive whatever fate Obamacare itself is dealt. Granted, premiums for everyone have been/will be raised to "cover" that scenario, but it is likely to continue. The individual insurance companies can make their own independent decisions as to whether that option remains available.

Rest assured that in the unlikely chance that Obamacare survives unscathed, POTUS will be screaming from the TV "look what I did for your children!!" -- but that is a separate topic altogether.

FE

[AZ-Tax]

Popular Provisions of the ACA

Not only being able to keep your kids on till age 26 is popular but how about Insurer's no longer can cancel your policy, no more denying applicants w/pre-existing conditions etc. I read an article that even if the ACA is completely struck down, many Insurer's, due to the popularity will offer many of these very popular provisions. Hard to beleive it took an act of Congress to get Insurer's to realize this but we all know Insurer's knew this all along. In my opinion, if the individual mandate is struck down and the rest of the provisions remain, I expect health insurance premiums to sky rocket unlike we have ever seen before. Why, one reason insurer's will now have to insure consumers w/pre-exising conditions which is an "immediate" claim for the insurer. Imagine if auto ins was not madatory and the auto insurer's had to offer you coverage regardless then you rear end somebody and buy insurance afterwards to cover that claim. If that was the case wouldn't we all be paying much much more for auto ins.?

Anyone who has or ever had an insurance license knows the first thing you learn is the "pool" regarding the basics of insurance.

Regardless what happens with ACA, I believe nothing but positive can come from it. It has brought front and center for the first time all these popular provisons that before where always shoved back under the rug each time they peaked there head out.

[tpert]

Yes....premature

Thanks for the responses.

I was stumped by the question and did not consider that this provision might be allowed to stay in place. Some provisions, (like pre-existing conditions) are highly dependent on everyone either having coverage or paying a penalty, but I agree that this provision does not seem dependent on that mandate.

I guess we will all wait and see what happens.

My client is an employee and must notify his employer as soon as any covered individuals cease to qualify.