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Affordable Care Act - Getting Ready for January 1, 2014

By: Deanna Scott

August 30, 2013

While there has been plenty of news coverage about the Affordable Care Act (ACA), much of what has been published is filled with technical words and complicated explanations that are hard to understand. Complying with many of the requirements of the ACA will be handled by the IRS, so PRO-TAX employees have been educating themselves on the details of the new laws. At PRO-TAX, we want to be a resource for all your questions about the ACA, both in 2013 when you make your healthcare coverage decisions, and in 2014 when you need to file your compliance forms. This is the first of several articles that will address your questions on this topic.

Q:  Am I required to have health insurance?

A:  For most people, the answer is “yes.” Starting January 1, 2014, the “individual mandate” portion of the law goes into effect. This term simply means that almost every person in the U.S. is required to have qualified health insurance coverage or pay a penalty or fine.  If you fit in one of the following groups, you are exempt from the penalty:

  • You belong to a religious group that is against accepting benefits  from a health insurance policy
  • You are an undocumented immigrant
  • You are in prison
  • You are a member of an American Indian tribe and receive health care through IHS
  • Your family income is below the threshold requiring you to file a tax return ($9,750 for an individual,  $12,200 for a family in 2012)
  • You have to pay more than 8% of your income for health insurance, not counting what your employer pays or any tax credits you receive

QHow much is the penalty I’ll have to pay if I don’t have qualified health insurance?

A:  If none of the bullet points above apply to you In 2014, and you don’t have insurance, the penalty is $95.00 per adult and $47.50 per child (up to $285 for a family) or 1.0% of the household income over the filing threshold, whichever is greater. In 2015, the penalty increases to $325.00 per adult and $162.50 per child (up to $975.00 for a family) or 2.0% of household income over the filing threshold, whichever is greater. Then in 2016, the penalty increases further to $695.00 per adult and $347.50 per child (up to $2,085 for a family) or 2.5% of household income over the filing threshold, whichever is greater.  After 2016, penalty amounts will be increased annually by the cost of living.

Q:  How will the government know whether I have qualified health insurance or not?

A:  You will tell them. The IRS is in the process of creating a new form for everyone who files a tax return. You will need to complete this new form along with the rest of your return. Among other things, this new form will require you to name the insurance company, the kind of health care coverage you have, and list which months out of the past year you were covered by that plan. If you had no health insurance, you will have to pay the IRS the amount of the penalty described above.

If you had coverage, but not for the whole year, the penalty is pro-rated by the number of months without coverage as long as the time period without coverage is less than three months in a row. There is no penalty for a single gap in coverage of less than three months out of the year.

In order to confirm the accuracy of the information you provide on the new form, the IRS will receive corresponding information from insurance providers, the Department of Health & Human Services, states, and other agencies.  The information on your form will be checked to see if it matches the information received from these organizations and agencies.

Q What does the ACA mean by “qualified” health care coverage?

A: In order for a health care insurance plan to be considered “qualified”, it needs to provide “minimum essential coverage.” The Department of Health and Human Services (HHS) has created this list of benefits that must be covered in order for a plan to be considered “qualified”:

  • Ambulatory patient services, or services that a person usually receives in an outpatient clinic
  • Emergency services
  • Hospitalization
  • Maternity (pregnancy) and newborn care
  • Mental health and substance abuse disorder services
  • Prescription drugs
  • Rehabilitative and habilitative services and devices – such as physical and occupational therapy, and hearing and vision aids
  • Laboratory services
  • Preventive and wellness services, and chronic disease management
  • Pediatric (children) services, including oral (dental) and vision care

All health care insurance companies have been notified that the plans they sell must fully comply with these minimum ACA requirements so that you, the consumer, do not have to worry about purchasing a plan that does not provide them.

Q:  Do I have to purchase other, or additional, health insurance if I’m on Medicare?

A:  No, you don’t. As a matter of fact, the requirement that you have qualified health insurance can be satisfied if you are insured for the whole year through one or a combination of any of the following programs:

  • Medicare
  • Medicaid or the Children’s Health Insurance Program (CHIP)
  • TriCare (for service members, retirees, and their families)
  • The veteran’s health program
  • A health plan offered by an employer
  • Insurance you bought on your own that is at least at the Bronze* level
  • A grandfathered health plan in existence before the health reform law was enacted

*This is a reference to the plans that will be offered on the Health Insurance Marketplace (also called an Exchange) in your state.

Q:  Will the government provide financial assistance to help me pay for this insurance I’m required to have?

A:  Yes; actually, both the state and federal governments will have programs in place to help those who are financially limited in meeting this obligation. Starting in 2014, premium tax credits will be available to U.S. citizens and legal immigrants who buy coverage from the new Health Insurance Marketplace and who have income up to 400% of the federal poverty level ($44,680 for an individual or $92,200 for a family of four in 2012).  To receive these credits, individuals must not be eligible for public coverage—including Medicaid, the Children's Health Insurance Program (CHIP), Medicare, or military coverage—and must not be able to purchase health insurance through an employer. (There is an exception in cases when the employer plan does not cover at least 60% of covered benefits on average or if the employee share of the premium exceeds 9.5% of the employee's income.

Q:  What is a Health Insurance Marketplace (or Exchange) and how do I find one?

A: The new Health Insurance Marketplace has been established to create a more organized and competitive way for individuals to shop for health insurance. Marketplaces will offer a choice of different health plans from both private and non-profit companies, and provide information to help consumers understand their options.

Under the ACA, each state will have its own online Marketplace. The federal government gives states three options for setting up Exchanges. States can choose to run their own Marketplace, making all decisions on coverage and administration within federal guidelines. Or states can choose instead to let the federal government run its “default” Marketplace in the state, charging the state a percentage of the premiums. The third choice is that states can “partner” with the federal government, using the default federal Marketplace, but administering some parts of it through state government. Marketplaces must be ready for Open Enrollment, when they will begin enrolling consumers on October 1, 2013, and be fully operational by January 1, 2014.

Marketplaces will primarily serve individuals buying insurance on their own and small businesses. Marketplaces will be set up as government agencies or as non-profit organizations. States can create multiple Exchanges as well, so long as only one serves each geographic area, and can work together to form regional Marketplaces.

You can find the Health Insurance Marketplace in your state by using the internet; just navigate to your state’s website and search for “health reform exchange” there. Or you can get information on the Marketplaces in all states – as well as answers to many of your health care reform questions - on the Kaiser Family Foundation website here healthreform.kff.org/timeline.aspx=QL

We expect this series of questions and answers hasn’t exhausted all you want to know about the ACA.  So look for more information in future articles.  If you don’t want to wait, call the ACA specialist at PRO-TAX on (434) 220-4705 ext. 4469.