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THE TAXPAYER

Q: Will my tax rate go up under the law?
A: Not right away, and not unless you have a relatively high income.

The first big tax increase for individuals will come in 2013 and will only affect individual taxpayers who earn more than $200,000 and married couples who make more than $250,00.

Q: How will that tax increase work?

A: The law increases the Medicare Part A tax rate by 0.9 percent (from 1.45 percent to 2.35 percent) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly. In addition, the law will establish a new 3.8 percent tax on unearned income for higher-income taxpayers.

Q: How about the tax on high-end health plans -- when does that start, and how big is it?

A: Starting in 2018, there will be a new excise tax on insurers of employer-sponsored health plans with an aggregate value of more than $10,200 for individual coverage and $27,500 for family coverage.

Those thresholds will be indexed to inflation beginning in 2020 and may be adjusted upward even earlier if health care costs increase more than expected. Higher thresholds will be applied for older employees, retirees younger than 65 and those in high-risk professions.

The excise tax will be charged to the issuer of the insurance policy. To calculate it, subtract the threshold amount listed above from the annual cost of the policy and multiply that figure by 0.4.

Q: Are there any other tax provisions in the law that could directly affect me?

A: Yes. The law increases the tax on distributions from a health savings account or an Archer Medical Savings Account that are not used for qualified medical expenses. For HSAs, the rate will go from 10 percent to 20 percent starting in 2011, and for Archer MSAs, the rate will go from 15 to 20 percent. Both changes take effect next year.

The law also limits the amount you can contribute to a flexible spending account for medical expenses to $2,500 per year in 2013, with the limit to be adjusted upward annually based on inflation.

In addition, the law will increase the threshold for the itemized deduction for unreimbursed medical expenses to 10 percent of adjusted gross income, up from 7.5 percent today. While this change takes effect in 2013 for most taxpayers, seniors will not be affected until 2017.

Q: How can the Congressional Budget Office say that the law will save $143 billion over 10 years when it comes with a price tag of $940 billion?

A: The government is going to be spending billions on Medicare, Medicaid, veterans health care and other programs, no matter what. Yes, the new law establishes a costly new burden: subsidized health care for millions of Americans who don't now have it. But it pays for that burden -- and then some through the increased taxes and efficiencies in Medicare and Medicaid, the nonpartisan Congressional Budget Office said.

Q: How solid are the Budget Office projections?

A: The Congressional Budget Office has an impeccable reputation for accurate, unbiased work. But its projections are only as good as the assumptions upon which they are based.

The assumptions are based on the notion that Congress will stick with the plan to cut Medicare funding -- and not amend the law to respond to angry doctors, hospitals or other health providers.

Also, the CBO's work cannot accurately estimate whether demonstration projects aimed to cut costs throughout the health care system will really work.

In other words, "while robust deficit reduction projections from the Congressional Budget Office offer some reassurance about the legislation, there is a great deal of downside risk that these projections will prove to be optimistic," said the Concord Coalition, a nonpartisan deficit hawk.

Q: And what will happen if the law ends up costing far more than projected?

A: That's an open question. Congress could curtail benefits or increase taxes to pay for the cost overruns -- or simply let the federal deficit grow to even higher record levels. None of those solutions is particularly politically palatable.

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>"You've got six years of benefits for 10 years of payment."

Mike Madigan opposes the health reform bill passed by Congress last week for many reasons, but two of the most important are living with him: his sons, 13-year-old Matthew and 15-year-old William.

"The amount of burden that's going to be placed on our children -- I'm really concerned about that, and what it's going to do to them," said Madigan, of Grand Island. "They're not going to be able to get ahead."

Madigan, 46, has plenty of company in thinking the health law -- projected to cost $940 billion over 10 years -- will be a budget-buster and a burden to future generations of Americans. That fear has fueled the growing "tea party" movement, which he joined 10 months ago.

The Congressional Budget Office has projected that the bill will trim the federal deficit by $138 billion over the next decade, but Madigan calls that projection "totally a farce."

He notes that most benefits don't start until 2014, while many new tax collections start immediately.

"You've got six years of benefits for 10 years of payment," Madigan said. "This corrupt gimmick, which the CBO can't question and must accept, tells me we're starting right out with a bankrupt process."

In addition, he doubts Congress will fulfill its promise of upwards of $500 billion in Medicare and Medicaid cuts to help fund the law.

"This system is headed for a crash," said Madigan, a health care industry program manager.

Worse yet, he sees the law as having been spawned from a corrupt and unethical process -- one that, in his view, will be entrusted with making life-and-death choices for millions of elderly, sick and unborn Americans.

Speaking of the Democrats who passed the bill, Madigan said: "They cloak their taxes in claims of good intentions."

-- Jerry Zremski

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