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Money Matters OBAMACARE IN PLAIN ENGLISHBy Mary Lynne Dahl, CFP® & Nancy Tietje, RHU-REBC
October 04, 2013
Beginning on October 1, 2013, you will be able to choose one of four medical insurance plans, if you do not already have a plan at work. You are exempt from this law if you have Medicare, Medicaid, Tri-Care, VA care or a plan at work. If you are not exempt you will be required to purchase your own individual plan. The new law sets up an exchange called “a health care marketplace” where you can select and purchase the medical plan you prefer. The marketplace is a system that provides subsidies to people who need them in order to pay the premiums on their medical insurance. The idea is to provide a way for everyone to have coverage and prevent people from being financially ruined because of a major medical expense. Even young, healthy people can run up huge medical bills from an accident or unexpected illness. National health care is intended to prevent that financial ruin by providing affordable, basic medical insurance for everyone. People who have coverage through Medicare, Medicaid, Tricare or the Veterans Administration do not qualify for subsidy, and some people who have coverage at work do not either. It depends on the plan provided by your work, or your family income, whether you qualify or not. If you have medical insurance at work, your employer is required to have sent you a notice by now, called Notice of Coverage, which tells you whether or not it provides you with “minimum value coverage” and “affordable coverage”. If it does both of these, a box will be checked on the Notice of Coverag, saying so. This means that you/your family do not qualify for subsidy in the new health care exchange. If however, the box is blank, you do qualify for subsidy and need to apply for it. You can do that at www.healthcare.gov. You must be a legal citizen or legal resident of the US and not be incarcerated at the time you apply. The question most people have is: how much will this medical insurance coverage cost me and do I qualify for a subsidy on any of that cost? The answer will depend on which plan you choose. The most basic plan is called the Bronze Plan, which will cover 60% of the costs of medical care (doctors, hospitals, prescriptions, therapy, and other medical services). It is the cheapest plan. The next level up is the Silver Plan, which covers 70% of medical care costs. It is slightly more expensive than the Bronze Plan. The Gold Plan follows the Silver Plan and covers 80% of medical care costs, costing a bit more than the Silver Plan. The most expensive plan is the Platinum Plan, which covers 90% of medical care costs. If you have no medical insurance and must purchase it to comply with this law, you will have variations of these 4 plans to choose from in the marketplace. The Alaska marketplace is run by the federal government. To qualify for a subsidy to pay for your medical coverage, which you will choose from the 4 marketplace plans, your family income must be less than 400% of the poverty level in your state. Subsidy implies that only part of the cost will be paid for by the government, but in some cases it may be almost all of the costs, depending on the income of the family applying for the subsidy. The actual amount of the subsidy is based on the family income compared to poverty levels. 2013 Federal poverty levels are: $14,350 for 1 person, $19,380 for 2 persons, $24,410 for 3 persons, $29,410 for 4 persons, $34.470 for 5 persons, $39,500 for 6 persons, $44,530 for 7 persons and $49,560 for 8 persons. If there are more than 8 persons in a family, add $5,030 for each additional person, to the poverty level. To be eligible for subsidy, multiply the poverty level X 4. If your family income is less than the poverty level X 4, you do qualify for subsidy. If it is greater, you do not qualify. Example: you are a 2 person household with family income of $60,000. You qualify for a subsidy because 4 X poverty level of $19,380 is income of $77,520 and your income of $60,000 is less than that. Congratulations! Alaska Natives qualify for free coverage if their family income is less than 300% of the poverty level and may use the 400% level guideline for family income above 300% of poverty level. Another important question many people have is: can I be denied or made to pay higher premiums for medical coverage if I have a pre-existing medical condition? The answer is NO, you cannot be denied and your cost for coverage cannot be rated (higher) due to a medical condition. Rates could be raised, however, for an entire community annually based on the experience of the entire community pool. Individual rates are allowed to be based on age, family composition, geographic area being rated and tobacco use. We should see an equalizing of rates. The State of Alaska Department of Insurance will require all providers offering individual and group policies to follow this rating method. One of the reasons given for passage of this new health care law is that everyone deserves affordable health care and also deserves a minimum of health care benefits that some insurance plans have not provided. To provide a minimum level of health care, the new law mandates that all plans must include the following basic benefits:
If you qualify for a subsidy, it is important that you file a tax return on a timely basis, as the subsidy is an advanced income tax credit on your tax return. A tax credit is a direct reduction of your income tax, not a deduction from your income. In this case, the government will advance you the credit, pay the premium to the insurance carrier and you will justify it on your tax return. Once you have qualified for subsidy, you can pay the entire premium yourself and receive the subsidy on your tax return. In addition, your federal tax return in the future will require you to report that you have health insurance, as a way to enforce compliance with the new law. Failure to purchase and have the insurance will be expensive, up to 1% of family income in 2014, 2% in 2015 and 2.5% of family income in 2016 and beyond. Small businesses with fewer than 50 full time employees do not have to offer health insurance; their employees will have to purchase their own health insurance online through the health care marketplace in their state. However, those small business employers who do offer health plans can shop for those plans in the state marketplace at a site called the Small Business Health Options Program (SHOP) starting Oct. 1, 2013. A small business with fewer than 25 full time employees who make less than $50,000 as an average wage can get tax credits to help pay for the health insurance for their employees. Starting in 2015, small businesses with more than 50 full time employees must provide health care plans to full time employees; part time employees will most likely have to purchase their own health insurance online through the health care marketplace in their state. The plans that the small businesses provide must include the essential benefits (by specific criteria) and must not cost the employees more than 9.5% of the household income of the lowest paid full time employee. Employees who make more than $200,000 will pay an increase of .9% in the Medicate tax. Employers will also pay their increased portion for their employees. Finally, a small business with over 50 full time employees which does not offer at least a Bronze Plan to their employees and pay at least 60% of the premium cost, or which does offer a plan but the plan is substandard or costs more than 9.5% of household income of the lowest paid full time employee will be penalized $2,000 per employee. It appears that penalties will increase annually, as a disincentive to not participating in the mandate to offer affordable, basic health care insurance at a minimum. Self-employed people who already have health insurance are not required to purchase through the state marketplace, but they can shop if they choose to do so, and may find a better plan or more affordable plan by switching to the marketplace. People covered by Medicare, with Medicare supplement and prescription plans are not required to make any changes. Their existing plans are considered affordable and provide a standard of care that meets the criteria under the new law. VA health care, Tri Care, and Medicaid likewise meet the criteria and do not require any changes in plans. Coverage under the new law is set up for regular enrollment is from October 1, 2013 to December 7, 2013, after which an open enrollment period is extended to March 31, 2014. For assistance in getting your own coverage, or to get answers to your own questions not explained in this article or on the web site, talk to a licensed health insurance agent who has the credentials and is certified to help. The new law also provides for people called “navigators” who assist you with understanding the web site itself, and with “application counselors” who help you fill out the application form. Your best bet, however, is to talk to a licensed health insurance agent. Regardless of whether or not you approve of the law, or of the threat to defund it, most people are required to become insured, so do not delay in finding out if you must apply, and how to go about doing so. Insurance companies in Alaska that will offer plans to Alaska residents are Premera Blue Cross of Alaska and Moda. For specific questions, please contact your health insurance agent or a local insurance company. Emails to the authors are welcome, as always.
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©2013 Mary Lynne Dahl, CFP® is a Certified Financial Planner ™ and partner in Otter Creek Partners, a fee-only registered investment advisor firm in Ketchikan, Alaska. These articles are generic in nature, are accepted general guidelines for investment or financial planning and are for educational purposes only. Mary Lynne Dahl©2013
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