There are a whole series of changes that will come into effect in 2013 in accordance with the implementation of the Patient Protection and Affordable Care Act (PPACA).  Additionally, federal politicians wrestling with the "Fiscal Cliff" that they have created could very well make decisions that impact your finances next year.  What changes will 2013 bring?

First, let's talk about changes in 2013 arising from health care reform:

• In accordance with the mandate for increased preventive care, states whose Medicaid programs choose to provide more and less expensive preventive care services to patients will receive extra funding.  This will provide incentive for more states to provide more extensive preventive care services to lower-income residents.
• Beginning on January 1, 2013, states are required to pay primary care physicians at least 100% of the Medicare primary care rate for Medicaid patients.  According to the federal government's health care website, this is supposed to be in preparation for increasing numbers of Medicaid patients in 2014; yet, it may be merely a tactic in which the government calls for full payment of doctors in order to maintain cooperation.
• By 2013, hospitals are required to coordinate payment "bundling", in which patients pay a flat rate for an episode of care rather than multiple fees for the different types of doctors and treatments involved in a single process.  This will enable easier payment for the patients and for their health insurance providers.
  • Starting in 2013, employers must also undergo "administrative simplification", involving the establishment of electronic exchange health information, electronic fund transfers, and federal certification of insurance plans.
• A $2,500 annual pre-tax limit on health FSAs (Flexible Spending Accounts) will start to be imposed in 2013 (previously, there was no limit).
• There is an increase starting in 2013 on the AGI (adjusted gross income) floor for health care expenses.  Whereas the previous AGI floor for health care expenses was 7.5%, it will soon be 10% (with exceptions for those turning 65 by 2016).  This means that fewer medical-based tax exemptions will be made, and individuals will have to pay taxes for a greater percentage of health care expenses.
• Reimbursements to employers for Medicare Part D plans will be eliminated at the beginning of 2013.
• Increased Medicare payroll taxes will be implemented starting January 1, 2013:
  • The tax will be increased .9% (to 2.35% total) for high-income individuals and couples. This increase will be taken into effect for self-employed individuals earning over $200,000 annually, married individuals filing separately earning over $125,000 annually, and couples filing jointly with a combined income of at least $250,000 annually.
  • An additional Medicare tax of 3.8% will be implemented on unearned income for high-income earners.
• Starting March 1, 2013, employers must inform their employees of the upcoming (2014) existence of state insurance exchanges, in case employees choose to opt into these exchanges.
• Effective August 1, 2013, religious organizations previously given an extra year to implement the contraceptive mandate inherent in providing preventive care services will no longer be exempt.  They will start to be held accountable for providing the full array of preventive care services.
• As of October 1, 2013, states will be given two extra years of funding for CHIP (Children's Health Insurance Program).  With this extra funding, states will continue to be able to provide health care to children who are above the threshold of qualifying for Medicaid.
  
  
Click here to view a timeline of health care reform changes.

1. Tax rates. Tax rules known as the "Bush tax cuts" expire today.  All income tax brackets shift upward -- the 10 percent bracket disappears and the new lowest tax rate will be 15 percent.  The 25 percent bracket becomes 28 percent; 28 percent becomes 31 percent; 33 percent moves to 36 percent, and 35 percent moves to 39.6 percent.  The capital gains tax rate will rise to 20 percent from 15 percent, and dividend taxes will move from being taxed as capital gains to being treated as ordinary income.

2. The Alternative Minimum Tax.  The AMT was aimed at preventing wealthier taxpayers from using deductions and other tax benefits to escape their fair share of taxes.  Since the qualifying income levels were not indexed for inflation, Congress has enacted an AMT "patch" each year to help millions of taxpayers avoid extra taxes.  There is now no patch in place for 2012 income taxes; and even if Congress acts soon, tax-filing season likely will be delayed.  If Congress doesn't approve a patch, many taxpayers will be hit by AMT payments.

3. Social Security COLA.  Recent negotiations reportedly included the Obama administration's acceptance of a new formula for setting the annual cost of living adjustment (COLA) for Social Security beneficiaries, called the chained CPI.  This might represent a more accurate cost of living measure than the index now used to set each year's COLA; but it also would cut effective Social Security benefits by more than $20 billion yearly after several years.  Also it would raise income-tax bills by reducing the size of automatic inflation adjustments the tax brackets use to determine different income tax rates.

4. Estate taxes.  Estate and gift tax rules are now relatively generous. Individual estates up to $5.12 million (double that for a couple) avoid all estate taxes, and amounts above these levels are taxed at 35 percent.  This is also the rate for gift taxes.  Without action by Congress, the estate-tax exclusion will plunge to only $1 million in 2012, and the tax on larger estate values will be 55 percent.

5. The "Doc Fix".  Back in 1997, Congress tied Medicare's payments to physicians to the growth of the economy.  Medicare cost increases, including physician expenses, regularly exceed overall economic growth.  Under the law, Medicare payments to physicians would have to be cut each year were it not for periodic Congressional action to override the cuts.  Without another fix, doctors will see about a 27 percent cut in their Medicare payments next year, and many doctors might stop taking Medicare patients.  In thinking about the Doc Fix, one might say "why bother, they are paid too much anyway".  But consider that in many locations, there are five support staffers for each doctor.  These are good middle-class jobs, and with a fragile U.S. economy who wants to see the likely higher unemployment that will result by not making this year's Doc Fix?

Happy 2013, Dear Readers!