To Insure or not to Insure: How does Obamacare Affect You

Obamacare Law and Individual Health Insurance

In March of 2010 The Patient Protection and Affordable Care Act (PPACA / Obamacare) was passed and a monumental shift took place in how health insurance is bought and sold in the United States. Since its inception, there has been a contentious debate over the legality of the law and the societal implications that go with it. The PPACA has polarized our country and partisan lines have been drawn.

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Regardless of which side of the line you fall on, the reality is that today Obamacare is a law and like every other law, we either obey the law or deal with the consequences of breaking it. So, how does Obamacare health insurance affect the average individual?

The Individual mandate is the part of the law which requires that most individuals have health insurance or face a penalty. There are a few exceptions to the individual mandate including;

You’re uninsured for less than 3 months of the year, The lowest-priced coverage available to you would cost more than 8% of your household income, You don’t have to file a tax return because your income is too low, You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider, You’re a member of a recognized health care sharing ministry, You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare, You’re incarcerated (either detained or jailed), and not being held pending disposition of charges, You’re not lawfully present in the U.S., You qualify for a hardship exemption [1].

The penalty for not being insured is calculated either as a percentage of your income or a flat fee – whichever is higher and is assessed when you file your federal tax return. The penalty for 2014 is 1% of your yearly household income or $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285. For 2015 the penalty is 2% of your yearly household income or $325 per person ($162.50 per child under 18) and is capped at $975 per household. The penalty increases every year. In 2016 it’s 2.5% of income or $695 per person. After that it's adjusted for inflation [2].

Purchasing health insurance seems like the better option until you consider the cost that goes with it. According to The National Conference of State Legislatures, as of March 2014, annual health insurance premiums edged beyond $16,000 for an average family [3]. No matter how much money you make $16,000 is a huge expense. For those at the lower end of the income scale, $16,000 is impossible. So the question is raised, how can Obamacare require individuals to purchase something they cannot afford. The answer comes by way of financial assistance through a government subsidy.

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There are two forms of financial assistance available under the PPACA. Whether or not you are eligible for either of these programs, and how much assistance you may receive, is determined based on the number of individuals in your household and your household income.

The first form of assistance is the Premium Tax Credit. The Premium Tax Credit is exactly what it sounds like, it is a tax credit. Unlike the typical tax credit, this one can be used as an advance. The government cuts a check to the insurance company every month on your behalf. The credit is applied to the monthly premium, reducing your monthly out-of-pocket premium cost. You pick up the difference between what the government pays and the total monthly premium.

The second form of assistance is called Cost Sharing Reduction. The Cost Sharing Reduction is a discount that lowers deductibles, coinsurance and copayments. This discount can drastically reduce the ongoing expense associated with healthcare.

There are some serious complexities with the financial assistance piece of the PPACA puzzle. One such complexity has to do with your household income. The application asks that you project you income for the next year. For some it is an easy calculation, for instance some who is on a fixed salary. For others it is very hard say how much they make, for instance self-employed individuals whose income fluctuates from year to year. There is a true up at tax time and the projection is reconciled with the true income. If the individual made more than their projection, they will have to pay back whatever was overpaid.

There is a lot to think about when making a decision on your health insurance needs. Obviously everyone needs coverage but it is a daunting task to wade through all of the details involved. The best thing to do is to find a good, licensed insurance agent who can help you sort through all of the considerations and make a decision that is in your best interest.
There is a tremendous amount of uncertainty surrounding the PPACA. There will continue to be heated debates and legal battles over the legitimacy of the law. No one knows how things will play out in the future but for now, we either play or pay.

[1] Healthcare.gov - Fees and Exemptions
[2] Healthcare.gov - Fee for not being covered
[3] NCLS.org - Health Insurance Premiums

Written by Ben Fromm of KCHealthExchange

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