Health Overhaul Means Higher Taxes, More Coverage

(Dow Jones) Taxes for high earners will climb under the health-care reform law but so will the opportunities to get coverage for themselves and their children-even those in their 20s.

"The overall impact on consumers is a pretty good thing," says Ken Sperling, leader of Hewitt's Global Health Care Practice.

Here is a quick summary of some areas of impact.

Taxes: Starting in 2013, individuals earning more than $200,000 and households earning more than $250,000 will pay a Medicare tax rate of 2.35%, up from 1.45%. Additionally, they will pay a new 3.8% Medicare tax on unearned income such as investment income, interest, dividends, annuities and rentals.

David Kelly, chief market strategist for J.P. Morgan Funds, says the tax rate on dividends and long-term capital gains is now 15%. That rate is expected to rise in 2011 to 20% for households earning more than $250,000, and 23.8% with the new Medicare tax. Kelly says about half of U.S. stocks are owned by households with income under $250,000 and about half are held in non-taxable accounts. He recommends that individuals reduce the amount in taxable accounts.

Starting in 2013, families will be able to set aside only $2,500 a year in a pre-tax flexible spending account. There is no legal limit now, but most employers restrict the maximum to $5,000. Consumers also won't be able to use the flexible accounts for out-of-pocket expenses for over-the-counter counter products.

Coverage: The legislation will make it easier for adults, children and pre-retirees to get more affordable coverage. Beginning this year, insurance companies will not be able to place a lifetime dollar limit on policies, deny coverage to children because of a pre-existing condition or cancel policies when someone gets sick. Most of these policies will go into effect in 2011.

Parents gain the ability to keep adult children on their plan longer starting in 2011 under most company plans. Children can then stay in their parent's plan until they are 26, as long as they are not eligible for other coverage. That applies even if they are married and not students. However, the employee contribution for coverage of those older will be taxable.

Medicare: Seniors using Medicare can expect lower out-of-pocket costs for medications, but the one out of four using Medicare Advantage could see premiums rise and services decline.

Exchanges: Those who have been laid off or want to retire before they're eligible for Medicare will soon be able to get coverage through high-risk pools and, by 2014, in health insurance exchanges. That means individuals who previously were reluctant to retire before Medicare kicked in because of pre-existing medical conditions will be able to get coverage through the high-risk pools now or health insurance exchanges after 2014.