The Patient Protection and Affordable Care Act (PPACA) includes a mandate that most Americans be covered by health insurance or pay a penalty for non-compliance. Individuals will be required to maintain “minimum essential coverage” for themselves and their dependents. Some individuals will be exempt, and others will be given financial assistance to pay for their health coverage.

With recent reports stating that 42 percent of Americans still do not know the Affordable Care Act is law*, it is clear many still have a lot to learn about how the new law’s provisions will affect them.

The law itself is over two thousand pages. Combined with thousands of pages of regulations and hundreds of pages of legal and tax guidance, it is no wonder most people haven’t become familiar with the details. With so much information, it can be hard to know where to start, but there are some key provisions applicable to individuals that every American should be aware of now. 

Below are some key dates and figures that you should know:

Starting in 2014, if your employer doesn’t offer health insurance or you are self-employed, you will be able to buy it directly in the Health Insurance Marketplace (often referred to as “exchanges”). Individuals and small business will be able to buy health insurance on the exchanges that meet the “minimum essential coverage” definition. The exchanges will offer levels of coverage for consumers to choose (currently called Bronze, Silver, and Gold for the lowest to highest cost plans). Also effective January 1, 2014, tax credits will become available to those with incomes between 100% and 400% of the poverty line who are not eligible for other affordable coverage.

For individuals that choose to remain uninsured during 2014, there will be a penalty tax levied and it will start being collected on tax returns for 2014 that are filed with the IRS in 2015. The penalty will phase in from 2014 to 2016 and will be based on the greater of a flat-dollar amount per individual or a percentage of income above the amount that triggers the requirement to file a return. The chart on the following page illustrates potential penalties for a family of four, with a minimum amount of income required to file a return at $20,000.

There will be some that are exempt from the penalty tax, including those that have household incomes below the threshold for filing a tax return, those that can’t afford insurance because their premiums exceed 8% of their household incomes, and those who go without coverage for less than three consecutive months during the year.

Many Americans will also be able to receive financial assistance through a subsidy to help cover their health care costs. Depending on your income and family size, you may qualify for some form of government assistance, including:

  1. Lower monthly premiums.
  2. Lower out-of-pocket costs for things like co-payments, co-insurance, and deductibles.
  3. Free or low-cost coverage through Medicaid or the Children’s Health Insurance Program.

This chart to the right shows who may qualify for credits to help pay for their monthly premiums.

Other noteworthy highlights:

  • The Health Insurance Marketplace (sometimes referred to as the Health Insurance Exchange) will be set up for individuals and small businesses to purchase insurance. Open enrollment on the Marketplace begins October 1, 2013, for coverage starting January 1, 2014.
  • You can find out if you qualify for coverage at a lower cost by going to www.Healthcare.gov and submitting an application starting October 1st. There are guides on the site now that can help you get ready for open enrollment.
  • Remember, if you’re covered under an employer-sponsored health plan then you meet the insurance requirement and will not be subject to penalties.
  • If you don’t currently have health insurance and don’t know if you’ll qualify for assistance, start doing your homework now. October 1st is right around the corner. If you miss out on the initial open enrollment period, you will have to wait to get coverage on the Marketplace in next year’s open enrollment period.

The bottom line. Very soon, many Americans will face a cost-benefit decision on whether to remain uninsured or pay for health care coverage. For some, the cost of paying the penalty will be much lower than paying for health insurance. Those who don’t pay the fine won’t be hit by IRS liens or levies, but the IRS can offset refunds, including those due to refundable credits.

There is a lot to the PPACA, and as more guidance comes out about the details, ATBS will be here to provide direction to you, our valued client.

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Andy Erwin, ATBS Tax Manager

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