Public Law 111-152: Key Tax, Health, & Education Rules

Public Law 111-152, the Health Care and Education Reconciliation Act of 2010, was signed into law on March 30, 2010. It served as a major amendment to the Patient Protection and Affordable Care Act (ACA), which had been enacted a week earlier, and was passed using the reconciliation process to make specific budgetary changes. The law’s purpose was twofold: to adjust the financial elements of the new health care framework and to overhaul the federal student loan system. It modified tax credits, adjusted penalties, and altered health care program funding, while also shifting higher education financing from federally-backed private loans to direct government lending.

Key Health Care Tax Provisions

A central component of the law was introducing new taxes on higher-income individuals to help fund health care changes. One of these was the Net Investment Income Tax (NIIT), a 3.8% levy on the lesser of an individual’s net investment income or the amount by which their modified adjusted gross income (MAGI) exceeds certain thresholds. These thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately.

Net investment income includes income from interest, dividends, annuities, royalties, and rents not derived from a trade or business. It also encompasses capital gains from selling property, such as stocks and investment real estate, while income from retirement accounts like 401(k)s and traditional IRAs is excluded.

Another revenue provision was the Additional Medicare Tax, which imposes an extra 0.9% tax on wages, compensation, and self-employment income. This tax applies to earnings exceeding certain thresholds: $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. Employers are required to withhold this tax from an employee’s wages once their earnings surpass the threshold, and unlike the regular Medicare tax, there is no corresponding employer share.

Self-employed individuals are responsible for paying the entire 0.9% tax on their self-employment income that exceeds the applicable threshold. This is calculated on Form 8959, “Additional Medicare Tax,” and paid with their regular income tax. The law does not allow this additional tax to be deducted as a business expense.

The law also finalized the structure of the Premium Tax Credit (PTC), a refundable credit designed to help eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. Eligibility for the PTC is tied to household income, generally for those with incomes starting at 100% of the federal poverty level (FPL). While the original law capped eligibility at 400% of the FPL, subsequent legislation temporarily removed this upper income limit through 2025.

The calculation of the PTC is based on the premium for the second-lowest cost silver plan (SLCSP) in the individual’s area, though the credit can be used for any Marketplace plan. Taxpayers can choose to have the credit paid directly to their insurance company in advance to lower their monthly payments. Alternatively, they can claim the full credit when they file their federal income tax return, which requires a reconciliation comparing advance payments with the actual credit they were eligible for based on final income.

Employer and Individual Health Care Mandates

The law solidified the Employer Shared Responsibility Provisions, which applied to Applicable Large Employers (ALEs). An ALE is defined as an employer with an average of at least 50 full-time employees, including full-time equivalent employees, during the preceding year. To determine full-time equivalents, the total hours of service for part-time employees in a month are summed and divided by 120.

Under these provisions, an ALE could face a penalty if at least one full-time employee received a premium tax credit for Marketplace coverage. One penalty was triggered if the ALE failed to offer minimum essential coverage to at least 95% of its full-time employees. A second penalty could be assessed if the coverage offered was not “affordable” or did not provide “minimum value,” meaning it covered less than 60% of total allowed benefit costs.

The law also established the Individual Shared Responsibility Provision, or individual mandate, which required most individuals to maintain qualifying health coverage. Those who failed to do so were required to make a payment when filing their federal income tax returns. The penalty was phased in over several years.

By 2016, the penalty reached its full implementation at 2.5% of household income or $695 per adult, whichever was greater. However, the Tax Cuts and Jobs Act of 2017 later reduced the individual shared responsibility payment to zero. This change effectively eliminated the penalty starting in 2019, though the original mandate structure was a key part of the 2010 law.

Modifications to Health Care Programs

A significant change introduced by the law was the mechanism to close the Medicare Part D prescription drug coverage gap, known as the “donut hole.” This gap was a feature where, after reaching an initial coverage limit, beneficiaries were responsible for a larger portion of their drug costs. The law laid out a multi-year plan to gradually eliminate this gap, and by 2020, it was fully closed, with beneficiaries becoming responsible for only 25% of the cost of their drugs until reaching the catastrophic coverage threshold.

The legislation also made adjustments to the payment structure for Medicare Advantage (MA) plans, which are private health plans that contract with Medicare. The law restructured the payment system to align MA plan payments more closely with the costs of traditional fee-for-service Medicare. This was intended to reduce overpayments to private insurers and generate savings for the Medicare program.

Furthermore, the act implemented new measures to combat fraud, waste, and abuse within Medicare and Medicaid. It authorized increased funding for anti-fraud activities, such as provider screenings and data analytics, to better detect improper payments. For instance, it established enhanced screening procedures for providers identified as high-risk, requiring measures like license checks and site visits before enrollment.

Student Loan and Education Reforms

Beyond health care, the law enacted a fundamental reform of the federal student loan system by terminating the Federal Family Education Loan (FFEL) program. Under the FFEL program, private lenders like banks made student loans that were then guaranteed by the federal government. The law mandated that starting July 1, 2010, all new federal student loans would be originated directly by the U.S. Department of Education through the William D. Ford Federal Direct Loan Program, removing private lenders as intermediaries.

The legislation directed that the savings from ending the FFEL program be reinvested into federal student aid programs. A primary use of these funds was to increase the maximum award for the Pell Grant program, which provides need-based grants to low-income undergraduate students to make college more accessible.

A portion of the savings was also used to make the terms of the Income-Based Repayment (IBR) plan more favorable for borrowers. The law lowered the cap on monthly payments for new borrowers after July 1, 2014, from 15% of discretionary income to 10%. It also shortened the loan forgiveness timeline for these borrowers, granting forgiveness of any remaining loan balance after 20 years of qualifying payments, down from 25 years.