From my accountants' client bulletin:

Obamacare does the following things this year:

• Insurance companies cannot limit lifetime payouts to specific policyholders


• Won't be allowed to drop policyholders; however, they will be able to drop coverage if someone commits intentional misrepresentation or fraud


• Must cover preventative services without a copayment, coinsurance or deductible


• Can't exclude children from coverage because of pre-existing medical conditions


• Must allow children to remain on their parents' policies until age 26

Also a high risk pool for insurance is established to allow adults with pre-existing conditions to buy health insurance. And a program to assist companies in maintaining coerage for former employees between ages 55 and 65 is established. What this program is, they don't mention. A third thing is that the federal government will pay $250.00 rebate to Medicare beneficiaries who reach the "donut hole" in that part D prescription drug plan. Last, they mention a new tax credit for companies with 10 or fewer employees with average wages of less than $25,000.00 per year. The maximum credit is 35% of premiums and the calculation is pretty complicated.

Regarding penalties:

Starting in 2014, if you don't have health insurance, you have to pay a penalty on your federal income tax return. In 2014, the amount is $95 per adult, or 1% of the AGI, whichever is greater. By 2016, the amount will be fully phased in with a flat dollar amount of $695 per adult or 2.5% of AGI. For kids, the flat dollar amount is 1/2 of the adult fine, and is capped at 3 times the adult fine for the year.

There are going to be tax credits for lower income families, families up to 400% of the federal poverty level. These credits will be paid directly to the insurer to cover that part of the premium. The formula again is sort of complicated.

How it's funded:

Starting in 2013 there will be an income based tax described as a medicare contribution, on UNEARNED INCOME only which is above 200K (250K for the married filer). This includes capital gains, rental income, interest and dividends, royalties and a few other sources. To the extent that these sources of income are over that threshold (using modified adjusted gross income), they will be taxed at a rate of 3.8%.

Another tax on higher earners is on EARNED income over 200K (250K for married couples). Currently the individual pays a tax of 1.45% (matched by the employer) on income for medicare, with no ceiling. in 2013, when your income reaches those levels, you will pay an additional 0.9% tax on earned income, but only on the part above that amount. So if you have 210K of income (single filer), you would pay $2,900.00 on the first 200K of that income, and an additional $235.00 on that next 10K for a total of $3,135.00. Up until 2013 you would pay $3045.00 medicare tax on that amount. In this example, the taxpayer pays an additional $90.00.

There are a few other sources of funding for the reform package. Businesses with 50 or more full time employees will have to offer insurance, and if they don't they have to pay a tax of $2000.00 per employee ( minus 20, for some reason) as of 4012. And so-called "cadillac plans" which cost more than $10200 for a single or $27500 for a family plan willbe taxed at 40% of the amount over those thresholds. This tax could be owed by either the employer, the plan administrator or the insurance company. This one doesn't take effect till 2018, and is in there to prevent employers from shifting more and more compensation away from taxable income to deductible benefits.

Income tax deductions for health care expenses will be harder to take if you itemize, as you will have to have medical expenses of more than 10% of your AGI instead of 7.5% as it is today. IRA distributions taken early will still be penalized, but can be taken tax free only for the amount of medical expenses exceeding that 7.5% (currently) going up to 10% in 2013.

And last, the amount allowed to be put into flexible spending plans pre-tax will go down from $5000.00 to $2500.00 in 2013.

Just some facts about the health care reform from the financial side of things. Sound awful?