The Reconciliation Act provides for an inflation adjustment in the starting and ending percentages for years after 2014. The adjustment will be based on the rate of premium growth for the preceding calendar year over that year's rate of income growth.

After 2018, the inflation adjustment will be based on the rate of premium growth for the preceding calendar year over that year's consumer price index growth, but only if the aggregate amount of premium assistance tax credits and cost-sharing reductions (under section 1402 of the Patient Protection Act) for the preceding calendar year exceeds an amount equal to 0.504% of the gross domestic product for the preceding calendar year.

The premium assistance credit will be available for years ending after Dec. 31, 2013.

• Excise tax on uninsured individuals. The Patient Protection Act creates new IRC 5000A, which requires U.S. citizens and legal residents to maintain minimum amounts of health insurance coverage. Minimum essential coverage includes various government-sponsored programs, eligible employer-sponsored plans, plans in the individual market, grandfathered group health plans, and other coverage as recognized by the secretary of Health and Human Services in coordination with the Treasury secretary. The coverage requirement would not apply to individuals who are incarcerated, are not legally present in the United States, or qualify for a religious exemption.

Individuals who fail to maintain minimum essential coverage will be subject to a penalty equal to the greater of (1) 2.5% of the amount by which the taxpayer?s household income for the tax year exceeds the threshold amount of income required for income tax return filing under section 6012(a)(1); or (2) $695 per uninsured adult in the household. The penalty will be phased in from 2014-2016. For 2014, the penalty will be the greater of 1% of household income over the filing threshold or $95; for 2015, it will be the greater of 2% of household income over the filing threshold or $325; and for 2016 it will be the full 2.5% or $695.

The act specifies that liens and seizures are not authorized to enforce this penalty, and noncompliance will not be subject to criminal penalties. The excise tax on uninsured individuals has been criticized as unconstitutional, and it has been challenged in a lawsuit brought by several state attorneys general (Florida v. Dept. of Health and Human Services, docket no. 3:10-cv-00091-RV-EMT (N.D. Fla., filed 3/23/10)).

This provision is effective for tax years beginning after Dec. 31, 2013.

• Adult dependent. The Reconciliation Act raises the age up to which parents can carry their children on their health insurance policy. It does this by changing the definition of "dependent" for purposes of IRC 105(b) (excluding from income amounts received under a health insurance plan) to include amounts expended for the medical care of any child of the taxpayer who has not yet reached age 27. The same change is made in section 162(l)(1) for purposes of the self-employed health insurance deduction, in section 501(c)(9) for purposes of benefits provided to members of a VEBA, and in section 401(h) for benefits for retirees. These changes were effective upon enactment.
• Medical care itemized deduction threshold. The threshold for the itemized deduction for unreimbursed medical expenses is increased from 7.5% of AGI to 10% of AGI for regular income tax purposes. This is effective for tax years beginning after Dec. 31, 2012, except that in the years 2013-2016, if either the taxpayer or the taxpayer?s spouse has turned 65 before the end of the tax year, the increased threshold does not apply and the threshold remains at 7.5% of AGI.
• Additional hospital insurance tax on high-income taxpayers. Under the Patient Protection Act, the employee portion of the hospital insurance tax part of FICA, currently 1.45% of covered wages, is increased by 0.9% on wages that exceed a threshold amount. The additional tax is imposed on the combined wages of both the taxpayer and the taxpayer's spouse, in the case of a joint return. The threshold amount is $250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.

For self-employed taxpayers, the same additional hospital insurance tax applies to the hospital insurance portion of SECA tax on self-employment income in excess of the threshold amount.

The provision applies to remuneration received and tax years beginning after Dec. 31, 2012.

• Medicare tax on investment income. The Reconciliation Act added a new IRC 1411 that imposes a tax on individuals equal to 3.8% of the lesser of the individual's net investment income for the year or the amount the individual's modified adjusted gross income exceeds a threshold amount. For estates and trusts, the tax equals 3.8% of the lesser of undistributed net investment income or adjusted gross income over the dollar amount at which the highest trust and estate tax bracket begins.

For married individuals filing a joint return and surviving spouses, the threshold amount is $250,000; for married taxpayers filing separately, it is $125,000; and for other individuals it is $200,000.

Net investment income means investment income reduced by deductions properly allocable to that income. Investment income is defined as income from interest, dividends, annuities, royalties and rents, and net gain from disposition of property, other than such income derived in the ordinary course of a trade or business (however, income from passive activities and from a trade or business of trading in financial instruments or commodities is included in the definition of net investment income).

This provision applies to tax years beginning after Dec. 31, 2012.

• Return information disclosure. The Patient Protection Act allows the IRS, upon written request of the secretary of Health and Human Services, to disclose certain taxpayer return information if the taxpayer's income is relevant in determining the amount of the tax credit or cost-sharing reduction or eligibility for participation in the specified state health subsidy programs.

Upon written request from the commissioner of Social Security, the IRS may disclose certain limited return information of a taxpayer whose Medicare Part D premium subsidy, according to the records of the Treasury secretary, may be subject to adjustment.

• Flexible spending arrangement. The Patient Protection Act mandates that the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee's dependents, and any other eligible beneficiaries with respect to the employee, under a health flexible spending arrangement for a plan year (or other 12-month coverage period) must not exceed $2,500. The provision is effective for tax years beginning after Dec. 31, 2012.
• Restrictions on use of HSA and FSA funds. Under the Patient Protection Act, amounts paid for over-the-counter medications will no longer be reimbursable from health savings accounts (HSAs), Archer medical savings accounts (MSAs), health FSAs, or health reimbursement arrangements. Amounts paid for a drug will only meet the definition of "qualified medical expenses" in sections 106, 220 and 223 if the drug is a prescribed drug (or is insulin). This provision is effective for amounts paid or expenses incurred after Dec. 31, 2010.
• Tax on HSA distributions. The additional tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses is increased to 20% of the disbursed amount, effective for disbursements made during tax years starting after Dec. 31, 2010. (Under prior law, the tax was 10% of the disbursed amount for HSAs and 15% for Archer MSAs.)
• Cafeteria plans. The Patient Protection Act makes premiums for coverage under a qualified health plan offered through an exchange a qualified benefit under a cafeteria plan. This provision applies only to cafeteria plans established by a small employer that elects to make all its full-time employees eligible for one or more qualified plans offered in the small group market through an exchange.

This provision is effective for tax years beginning after Dec. 31, 2013.