In 2010, President Obama signed into law the Patient Protection and Affordable Care Act, a significant expansion of government involvement in the American health care system, including a mandate that everyone must purchase health insurance. The act is commonly referred to as “Obamacare.”
The following is a primer on the basics of Obamacare, and what you need to know in order to comply with the many requirements in the law.
What do I have to do?
By January 1, 2014 you have to either purchase health coverage approved by the government or pay a penalty. You can remain uninsured and decide to purchase insurance at any time, even if you have just received a diagnosis of cancer and need immediate treatment. The insurance mandate and insurance subsidies apply only to U.S. citizens resident in the United States and to non-citizens who are lawfully present in the United States.
How much is the penalty?
|Year||Minimum “Flat Dollar” Penalty||Percent of Income Penalty|
|2014||$ 95 per person/$47.5 per child||
|2015||$325 per person/$162.5 per child||
|2016||$695 per person/$247.5 per child||
In general, the penalty applies to each uninsured person in a household. Households with incomes below the federal filing threshold are exempt. The penalty is either a “flat dollar” amount or a percentage of one’s income, whichever is higher. The penalty for uninsured children under 18 is half the uninsured adult penalty. Families with dependent children can be charged a maximum of three times the per person flat dollar penalty. The law assesses 1/12 of the penalty for each month that you are uninsured. People facing unusual circumstances can request a hardship exemption.
In 2016, the maximum penalty that can be charged is the cost of the national average “Bronze” level health plan. No one knows how much this will be yet, because California is the only state to publish premiums. Its median Bronze plan premium for a 40 year old person in 2014 will be around $261 a month or $3,132 per year. For a 25 year old it will be around $204 a month or $2,448 a year. Flat dollar penalties rise with the rate of inflation after 2016.
- A single person with an income of $20,000 a year in 2014: The penalty is $200. Multiplying a $20,000 income by 0.01 to get one percent yields $200, which is larger than the $95 flat dollar penalty for a single person. In 2016, the penalty would be the flat dollar $695 because 2.5 percent of a $20,000 income is $500.
- A college student earning $3,000 a year in 2014. No penalty. His income is below the federal filing requirement. In 2012, the minimum income required to file was $9,750 for a single person under 65.
- A parent with two dependent children and a taxable income of $35,000 a year. In 2014, the penalty will be $350 because one percent of income is larger than the flat dollar adult penalty of $95 plus 2 child penalties of $47.50. In 2016, the penalty would be $1,390 because 2.5 percent of an income of $35,000 is $875 and the flat dollar penalty for one adult and two children is larger, $695 for one adult plus $695 for the two children combined.
- A married couple with 3 children and an income of $80,000. In 2014, the penalty would be $800 which is larger than three times the adult flat dollar penalty of $285. In 2016, the penalty would be 3 times the per person penalty of $695 per person because $2,085 is higher than the $2,000 which is 2.5 percent of income.
How is the penalty collected?
The penalty is collected with each year’s federal tax return. Penalties for 2014 will be due when your 2014 tax return is filed in 2015. If you fail to pay the penalty when you submit your return, the IRS can take it out of your income tax refund if you have one. The IRS may impose a statutory lien saying that you owe the penalty and starting a 10 year statute of limitations on back taxes, but it may not enforce failure to pay the penalty in the same way it enforces failure to pay taxes. It may not criminally prosecute you for failing to pay the penalty, file federal tax liens against your property, or seize your property to collect the penalty. It may harass you with phone calls, hire a private collection agency to harass you, and send its own employees to harass you. It may impose late fees and interest on the amount that is unpaid.
How do I get government approved health coverage?
Regardless of your income, you can always buy health insurance from companies that offer health insurance or health coverage. You may be able to purchase health insurance through your employer, but not all employers offer health insurance. As a result of ObamaCare employer fines, some employer coverage may be redesigned to meet ObamaCare regulations but will longer provide adequate protection against serious medical problems. Government programs like Medicare, Medicaid, and the Veteran’s Administration are also approved coverage.
If your income is below 400 percent of the federal poverty level, $45,960 for a single person in 2013 plus $16,080 for each additional person, and your employer does not offer the “affordable coverage” explained below, you will be eligible for federal subsidies. You can only get those subsidies by choosing to purchase one of the coverage plans offered through Connect for Health Colorado, the state health benefits exchange. It plans to begin enrollment in October, 2013.
The income levels eligible for subsidies are based on the Federal Poverty Level. It is recalculated every year by the federal government and is available on the internet. In determining income for the Federal Poverty Level, the government does not take into account the value of social program benefits like food stamps, housing vouchers, and child-care.
If your income is below 133 percent of the federal poverty level (or 138 percent with certain income set-asides), you will not receive subsidized coverage unless you enroll in Medicaid. In 2013, 133 percent of the Federal Poverty Level was $15,282 for a single person, plus $5,347 for each additional person in your family.
To apply for a subsidized policy through Connect for Health Colorado you will be required to supply detailed information on employment, family structure, and income. That information will be stored in a government database and matched with information from the Internal Revenue Service. In general, you will be required to pay 3 to 9.5 percent of your income for subsidized health insurance premiums. You will also be liable for 6 to 30 percent of the maximum out-of-pocket amount (deductible, copays, and coinsurance) of roughly $6,250 for single coverage and $12,500 for family coverage. Be aware that subsidy losses resulting from an extra dollar of take-home pay can, in some cases, raise your health premium payments by more than your income increases.
Subsidy awards are based on the income you think you will have during the next year. If your income rises unexpectedly, and the increased income shows up on your tax return, you may be required to refund repayment of “excess” subsidies.
How does “affordable” employer coverage affect your options?
The law requires that employers who decide to offer coverage either offer “affordable” coverage or pay a fine. Roughly speaking, current regulations define affordable coverage as making self-only coverage available to an employee for an annual cost of not more than 9.5 percent of Box 1 on his W-2 form. Policies covering spouses and children are not included in the affordability definition. If your employer offers “affordable coverage” for you, but family coverage that is not “affordable,” you and your family are not eligible for subsidized coverage from Connect for Health Colorado. You may still purchase full priced coverage through it or on the open market.
At present, average employer family coverage costs almost $3,000 more than self-only coverage.
Depending on your income and how the law ends up affecting premium costs for employer policies, working for an employer that does not offer coverage could make you financially better off.
Linda Gorman is director of health care policy at the Independence Institute, a free-market think tank in Denver.