Things I Learned from Reading the Affordable Care Act
Update for 2014 filing season is HERE
The act is nearly incomprehensible in its legalese form, so it is possible I misinterpreted or misread some of this stuff. Please let me know if you have any questions or think I've made a mistake.
The rules for eligibility for Medicaid will change in 2014 such that anyone earning less than 133% of the poverty limit will be eligible. The takeaway is that if someone earns below 133% of the poverty level, they should apply for Medicaid in October of 2013 before applying to a Health Care Exchange. (The Supreme Court declared this mandate to the states unconstitutional so individual states may refuse the additional funding for this and opt out of the increased eligibility.)
The term subsidy really refers to the refundable Premium Assistance Tax Credit (PATC)
Open Enrollment for Health Care Exchanges starts on 10/1/2013 and ends on 3/31/2014. For subsequent years it will be from 10/15 to 12/7 of the preceding year. The default basis for determining eligibility for the advance PATC will be the 2012 tax return information, but the actual credit is determined based on 2014 income.
The PATC is calculated on a monthly basis using 1/12 of the annual income for 2014.
The PATC may be applied directly to premiums for insurance obtained through the exchanges. The 2014 tax return will reconcile the amounts paid with the actual credit eligible and the difference applied to 2014 tax.
If the taxpayer received too much credit, they will have to repay the excess as an additional tax on their 2014 return. My research indicates that this amount could be in the tens of thousands of dollars! The good news is that if the taxpayers income is below 400% of the poverty level, the repayment is capped at between $300 and $2500 depending on filing status and income. Still, if they go above 400% of poverty level, they could be in REAL TROUBLE!
To avoid the above, it is vital that the taxpayer keep the exchange informed of changes in income, marital status and family size on a month to month basis if they occur.
I ran 2 scenarios using numbers from various exchanges. My worst case scenario involved a 62 year old family of 4 where a significant (somewhat unrealistic) increase in income from 2012 to 2014 could result in a repayment in excess of $30000. I also ran a 55 year old single man, with 2012 income of $35000 and 2014 income of $46100. This fairly plausible scenario would result in a repayment of just under $7000.
The Healthcare Exchanges will offer plans categorized as Bronze, Silver, Gold and Platinum based on the percentage of costs covered. In any case, out of pocket expenses will be capped annually at a fairly reasonable amount. Some of the exchanges don’t specifically or obviously use these categorizations, but they do specify cost, subsidy, deductibles, and caps.
The PATC is calculated based on the second cheapest Silver plan price for the state exchange the taxpayer uses. The credit is designed to cap out of pocket expenses for insurance premiums for this plan at between 2 and 9.5% of income for persons below 400% of the poverty level (2% for persons below 133% ranging up to 9.5% for people at 400%)
The PATC is calculated per above regardless of the plan actually accepted. This means that accepting a lower tier plan will result in lower out of pocket expenses for premiums while a higher plan will cost more out of pocket for premiums.
Filing a 2012 tax return is the best way to make applying at an exchange simple and easy.
Taxpayers should go to www.healthcare.gov in October of 2013 if they need to use an insurance exchange. This is where the best information will be available.
MOST IMPORTANT: I said this above, but I cannot emphasize enough how important it is for someone receiving the PATC to keep the Healthcare Exchange informed if their income changes significantly or their family status changes.
Example of why it's incomprehensible. They say, "taxpayer whose tax is determined under section 1(c)" instead of saying, "Single" in the excerpt from the law below.
‘‘(i) IN GENERAL.—In the case of an applicable taxpayer whose household income is less than 400 percent of the poverty line for the size of the family involved for the taxable year, the amount of the increase under subparagraph (A) shall in no event exceed $400 ($250 in the case of a taxpayer whose tax is determined
under section 1(c) for the taxable year).
Some information on the Health Care Exchange Plans:
-Bronze level will cover 60% of expenses for covered services
-Silver level will cover 70%
-Gold level will cover 80%
-Platinum level will cover 90%
-Out of pocket expenses for covered services are capped annually at $5950 for individuals and $11900 for families.
-The Secretary of Health and Human Services will specify required services to be covered, but they will include, at a minimum: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse services, prescription drugs, rehabilitative services, laboratory services, preventive care and disease management, and pediatric services including eye and dental care.
Some information on the penalty for failing to have coverage:
-In 2014, the penalty for not having qualifying health insurance will be the larger of:
1% of income -or-
$95 dollar per adult and $47.50 per child in the household up to $285 max
-In 2015, the penalty for not having qualifying health insurance will be the larger of:
2% of income -or-
$325 dollar per adult and $162.50 per child in the household up to $975 max
-In 2016, the penalty for not having qualifying health insurance will be the larger of:
2.5% of income -or-
$695 dollar per adult and $347.50 per child in the household up to $2085 max
-The penalty is calculated on a monthly basis for each month of non coverage, however, there is no penalty for any one period of no more than 3 months of non coverage for each year. (If the 3 months is exceeded you pay the penalty for all 12 months, it's not a 3 months free exception.)
-There is no penalty if your income is below the filing threshold
-There are other exceptions for hardship (to be defined later), incarcerated individuals, religious objectors (very restrictive rules), illegal aliens, Native Americans and persons with very limited income (out of pocket expenses for premiums would exceed 8% of income.) There are other exceptions, but these are the big ones.
-There is an IRS form to be determined later that will detail insurance coverage and periods that will be required to be sent by insurance providers to taxpayers by January 31st of the tax filing season. This form will list the persons covered by name and SSN and provide the dates coverage was in force.
-There is a provision for the IRS, with the assistance of the Secretary of Health and Human Services to inform taxpayers without coverage as of June 30th of each year that they are not covered and to provide information on services available through Health Care Exchanges.