How the Affordable Care Act Affects You

For the first couple years after the Affordable Care Act was signed into law, everything seemed to be a bit up in the air.  There was almost constant bickering about the subtle nuances of the legislation, along with uncertainty from both sides of the political spectrum insofar as whether or not the law would stand the test of time.  The Supreme Court had to weigh in, and we also had a major election cycle midway between the signing of the law and the enactment of many of its main provisions.

Most of that has settled down now.  SCOTUS upheld the law.  And there was no election upheaval in Congress to tilt the legislative body towards a crowd that would be likely to repeal it.  States – like Colorado – that had been working towards setting up a health benefits exchange can continue to do so without as much worry that their work might be in vain (there had been some concern that the law would be tossed after states had invested a lot of time and money in the exchange-creation process).  We are just over a year out now from January 2014, when many of the major provisions of the ACA will go into effect; it seems relatively certain at this point that the ACA will continue to move forward now that some of the potential roadblocks are in the rearview mirror.

Several provisions of the Affordable Care Act – ACA have already been implemented over the past two years:  Young adults can remain on their parents’ health insurance policy until age 26, there are no longer lifetime benefit maximums on health insurance policies, preventive care coverage has been greatly improved, high-risk health insurance pools are now available in all states, and coverage for children under the age of 19 is now guaranteed issue (as long as the child is covered as a dependent on a parent’s policy.  If the child is applying without a parent for coverage in Colorado, the application must be submitted during the January or July open enrollment windows).

But what does the future hold as far as the ACA goes?  How will the Affordable Care act, also known as Obamacare, affect you, your family, your employer, your business?  The Healthcare.gov site has a comprehensive timeline with information about implementation of the law over the next few years.  We wanted to also answer a few of the most common questions we hear, since there is still a lot of confusion around the ACA.

1. The individual mandate goes into effect in 2014.  What happens if I choose to go without health insurance after that?

• Although some exemptions (eg, religious, financial, member of a Native American tribe, or a short period of being uninsured) will be provided, the vast majority of the population will be required to maintain health insurance coverage starting in 2014.  A person who chooses not to do so will be subject to a financial penalty, payable as a federal tax liability when the individual files his or her tax return.  The penalty amounts in 2014 will be relatively small, but they will increase over the following years.
• In 2014, the penalty will be either $95 per uninsured person in the household, or 1% of the household’s taxable income – whichever is greater.  For children under 18, the penalty amount is half of the adult amount, and for families, the penalty based on a per-person calculation is capped at 300% of the individual penalty (so a family of six, all uninsured, would pay a maximum penalty of $285 (300% of $95) in 2014, assuming that they qualified for the flat-rate penalty rather than the percentage of income penalty).
• In 2015, the penalty will be $325 per uninsured person or 2% of the household’s taxable income – whichever is greater.  Again, the maximum amount that a family can be penalized under the flat-rate calculation is 300% of the individual penalty ($975 total), although there is no maximum if the family qualifies for a penalty based on a percentage of their income instead.  The penalty for children under the age of 18 is half the penalty for adults.
• In 2016 and beyond, the penalty for going without health insurance will be $695 per person, or 2.5% of taxable household income, whichever is greater.  The maximum penalty for a family based on the flat-rate calculation would be $2085 (300% of $695), and the penalty for a child under 18 is still half the amount of the penalty for an adult.
• Starting in 2017, the penalty will be based on the 2016 numbers, but will be increased annually based on the cost-of-living adjustment.

2.  What if I have my own business?  Do I have to get health insurance through my business?

• If you’re self-employed, your health insurance options will remain largely unchanged from the way they are now, although you’ll be able to obtain individual health insurance on a guaranteed-issue basis starting in 2014.  Self-employed people with no employees will be able to purchase individual health insurance or a small business plan through SHOP (Small Business Health Option Programs, part of the state-based exchanges).  Currently, a self-employed individual who has a significant pre-existing medical condition may not be able to get individual health insurance because of medical underwriting.  For people in that situation, there are currently business group of one options available, but they are limited in terms of benefit options:  most carriers provide “basic” and “standard” coverage on a guaranteed issue basis for groups of one.  Starting in 2014, all of the individual health plans will be guaranteed issue, and self-employed individuals will be able to select from a wider range of plans, regardless of their medical history.  The rules discussed above regarding the individual mandate will apply to everyone, including self-employed individuals.

3.  What if I own a small business and have employees?

• Congratulations on your success so far – owning a small business is no easy feat!  You may already be benefiting from the small business health insurance tax credit:  Businesses with fewer than 25 full-time equivalent employees are eligible for tax credits of up to 35% of your portion of premiums, as long as you cover at least half of your employees’ premiums (full-time equivalent employees means the total number of full-time employees plus the number on a part-time basis, converted to full-time.  So for example, if you have 10 full time employees and 20 half-time employees, that would add up to a total of 20 full-time equivalent employees, since each of the half-time employees counts as half of a full-time equivalent).  The maximum tax credit is currently available to businesses with fewer than 10 full-time equivalent employees with average salaries of $25,000 or less, and phases out at 25 full-time equivalent employees and $50,000 average annual salaries.
• Starting in 2014, the tax credit maximums will increase to up to 50% of the employer’s contribution if the coverage is purchased through a state-based SHOP exchange.  However, the credits will phase out after the exchanges have been operational for two years.
• If you have employees and choose not to provide health insurance, you may be subject to a financial penalty starting in 2014, depending on the number of full-time equivalent employees and the number of actual full-time (30 or more hours per week) employees you have.   If you have 50 or more full-time equivalent employees, you’d be subject to a penalty of $2000 per full-time employee if you have at least 30 full-time employees, but the penalty is only applied to 31st full-time employee and beyond.So a business with 20 full-time employees and 60 half-time employees would have 50 full-time equivalent employees (20 plus 30, since each of the 60 half-time employees counts as half a full-time equivalent) but likely would not face any penalty at all, since there are only 20 full-time employees and the threshold for the penalty is 30 full-time employees.  If the business had 35 full time employees and 50 half-time employees, the full-time equivalent threshold would be met (60 full-time equivalents) and so would the 30 full-time employees threshold.  That means that if the business failed to provide health insurance to the 35 full-time employees, it would face a penalty of $10,000 per year ($2000 each for the 31st through 35th full-time employees).

4.  If I’m shopping for my own individual health insurance plan, what sort of coverage do I have to get?  And how do the premium subsidies work?

• Health insurance policies sold within the exchanges (and non-grandfathered plans sold outside of the exchanges) will have to qualify as at least “bronze” coverage, meaning they pay at least 60% of healthcare costs.  We’ve explained more details about this in previous posts.  Basically, the minimum coverage requirements will help to eliminate some of the lesser-quality health insurance plans that are sometimes sold to unsuspecting consumers.
• The premium subsidies will be available through the exchanges to people with incomes of less than 400% of the federal poverty level, assuming that the person isn’t eligible for public health insurance (ie, Medicaid, SCHIP, etc.)  This Kaiser Family Foundation publication explains the details of the subsidies and provides some helpful examples.  Part of the ACA provides federal funding to allow states to expand their Medicaid eligibility to anyone earning less than 133% of FPL – but this was the one aspect of the law that SCOTUS did not uphold:  states cannot be forced to implement this expansion.  So while some people earning up to 133% of FPL will be eligible for Medicaid (and thus not eligible for subsidies for private coverage in the health insurance exchanges), other people at this income level will be eligible for subsidies in the exchanges.