The Affordable Care Act Requires Every Individual To Have Health Care Coverage

by Larry Gearhardt, OSU Extension Field Specialist, Taxation

In March 2010, President Obama signed into law new health care reform. One part of the legislation is known as the Patient Protection and Affordable Care Act. Many of the provisions contained in the law become effective in 2013 and the law will be active beginning in 2014.

While the primary purpose of this reform is to mandate that all U.S. residents obtain health insurance coverage, the law creates a host of tax credits and penalties on taxpayers and employers for failure to do so. In addition, there are several new rules that were created to raise the necessary funds to do so.

In two previous articles, we discussed the impact of the Affordable Care Act on “applicable large employers” (Ohio Ag Manager 6/25/13) and small employers (7/15/13). However, the goal of the Affordable Care Act is to ensure that every individual has health care coverage. So even if an individual is not covered under a health care plan provided by an employer, an individual is required to obtain health care coverage, unless exempted under the law, or pay a penalty.
The focus of this article is on the Affordable Care Act’s requirements for individuals not covered by an employer’s plan.

Can I Be Exempted From Obtaining Health Care Coverage?
The Affordable Care Act requires every individual U.S. citizen and legal resident to have qualifying health coverage. Those individuals without qualifying health care coverage will be required to pay a penalty. However, the law provides the following exemptions:
• Financial hardship
• Religious exemptions
• American Indians
• Those without coverage for less than three months
• Undocumented immigrants
• Incarcerated individuals
• Those for whom the lowest cost plan option exceeds 8% of the individual’s income
• Those with incomes below the filing threshold (currently $9,350 individual and
• $18,700 for family)

What Is The Penalty For No Coverage?
Those individuals without coverage and who are not exempt pay a tax penalty of the greater of $695, up to a maximum of three times that amount ($2,085) per family, OR 2.5% of household income.

The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee, or 1% of taxable income in 2014, 2% of taxable income in 2015, and 2.5% of taxable income in 2016. After 2016, the penalty will be increased annually by the cost of living adjustment. NOTE: paying a penalty does not provide health coverage; an individual will still be responsible for 100% of the cost of their medical care.

Where Do I Obtain Health Coverage?
First, Medicaid will be expanded to all non-Medicare eligible individuals under age 65 with incomes up to 133% of the Federal Poverty Limit based on modified adjusted gross income. All newly eligible adults will be guaranteed a benchmark benefit package that meets the essential health benefits available through the Exchanges.
The 2012 poverty levels according to the U.S. Department of Health and Human Services are as follows:
Persons in family unit Poverty level in 48 contiguous states
1 $11,170
2 $15,130
3 $19,090
4 $23,050
5 $27,010
6 $30,970
7 $34,930
8 $38,890
Each additional person adds $3,960

Second, individuals can obtain health coverage through state-based American Health Benefit Exchanges which are required to be created by the new law. Ohio has opted not to create its own program, instead choosing to participate in the federal exchange. Separate Exchanges will be created where small businesses can purchase coverage.
Some key dates to remember are:
• October 1, 2013 – open enrollment starts
• January 1, 2014 – coverage under the plan starts
• March 31, 2014 – open enrollment ends

After open enrollment ends on March 31, 2014, an individual will not be able to obtain health coverage through the Exchange until the next enrollment period, unless they have a qualifying life event. In Ohio, an individual should go to HealthCare.gov to research coverage.

What If I Can’t Afford Coverage?
The new health care law provides for a premium tax credit and cost-sharing subsidies through the Exchange for U.S. Citizens and legal immigrants who meet income limits. Employees who are offered coverage by an employer are not eligible for a premium tax credit unless the employer plan does not have an actuarial value of at least 60% of the cost of essential minimum coverage, or if the employee’s share of the premium exceeds 9.5% of his income. Recall from a previous article that an “applicable large employer” must pay a penalty of $3,000 per employee if the health coverage being offered is less than 60% of the affordable health coverage. Legal immigrants who are barred from enrolling in Medicaid during their first five years in the U.S. will be eligible for the premium tax credit.

Premium Tax Credit
A premium tax credit is available for eligible individuals and families with incomes between 100 to 400% of the Federal Poverty Level (FPL) to purchase insurance through the Exchanges. This credit is both refundable and can be advanced, meaning that the eligibility and amount of the credit is determined before enrolling and the money is forwarded directly to the insurer to pay the premium. However, an individual can elect to pay the premium out-of-pocket and apply to the IRS for the credit at the end of the year.

The premium tax credit will be set on a sliding scale such that the premium contributions are limited to the following percentages of income for specified income levels:
• Up to 133% FPL – 2% of income
• 133 to 150% FPL – 3 to 4% of income
• 150 to 200% FPL – 4 to 6.3% of income
• 200 to 250% FPL – 6.3 to 8.05% of income
• 250 to 300% FPL – 8.05 to 9.5% of income
• 300 to 400% FPL – 9.5% of income

To claim the credit, married taxpayers must file a joint return. The credit will not be allowed to anyone who can be claimed as a dependent on another tax return, whether or not the other taxpayer actually claims the dependent. And in any event, the credit will be limited to the amount of the actual premium paid.

Cost-Sharing Subsidies
The second tool provided to help low-income individuals afford health coverage is cost-sharing subsidies. Starting in 2014, cost-sharing subsidies will be available to reduce the annual out-of-pocket expenses for health care. The subsidies are available in only the months in which an individual receives a premium tax credit. Putting it another way, if you are not eligible for a premium tax credit, you will not be eligible for cost-sharing subsidies.
The term “cost-sharing” includes deductibles, co-insurance, co-payments, or similar charges, as well as any other expenditure required of an insured individual which is a qualified medical expense with respect to essential health benefits covered under the plan. “Cost-sharing” does not include premiums, balance billing amounts for non-network providers, or spending for non-covered services.

The cost-sharing subsidy is available only to those individuals with incomes between 100 to 400% of the Federal Poverty Level (FPL). The cost-sharing subsidies reduce the cost-sharing amounts and annual cost-sharing limits. This has the effect of increasing the actuarial value of the basic benefit plan to the following percentages of the full value of the plan for the specified income level:
• 100 to 150% FPL – 94%
• 150 to 200% FPL – 87%
• 200 to 250% FPL – 73%
• 250 to 400% FPL – 70%

Conclusion
Beginning October 1, 2013, individuals and small employers with fewer than 100 employees will have an opportunity to enroll in a state-based American Health Benefit Exchange and Small Business Health Options Programs. These Exchanges can be administered by a government agency or non-profit organization, through which individuals and small businesses can purchase qualified coverage. The expansion of Medicaid and the premium tax credit, coupled with the cost-sharing subsidies, will help low-income individuals and families afford health coverage. In theory, this will meet the goal of the Affordable Care Act that every U.S. citizen have health coverage.

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