What does the New Healthcare Law mean for me?
The Affordable Healthcare Act, colloquially known as “Obamacare,” has been in progress for several years. As of Thursday, June 28th, the bill was approved by the Supreme Court. Of course, there are no guarantees that it will go into effect; the act could be dispensed if Mitt Romney wins the election, and House Majority Leader Eric Cantor has promised to vote for its repeal. Assuming that the act stays, however, it should go into effect completely by 2014.
The purpose of the Affordable Healthcare Act is to address the massive number of Americans without health insurance. By regulating health insurance and requiring everyone to obtain an insurance policy, the act seeks to protect the health of more citizens while reducing the overall cost of healthcare.
Currently, the act requires employers to offer group health insurance programs. Employers that fail to provide insurance to all workers must pay a fine. In 2014, the same requirement will be true of all individuals: People without health insurance will need to obtain a policy or pay a penalty to the government. In order to make this possible, state-funded insurance exchanges will be offered to low-income households, and limitations will be placed on insurance companies regarding cost and coverage.
How Does it Work?
There are several facets of the act, each designed to approach the issue from a different angle:
– All employers must provide group health plans to their employees. Businesses with fewer than 50 employees are exempt from this requirement, but all other companies must provide coverage. If they fail to provide health insurance benefits, the company must pay a fine for each uninsured employee.
– All individuals must purchase health insurance. If not insured through their employers, individuals must obtain an individual policy. For people who cannot afford a standard health insurance policy, state-funded insurance exchanges will be available to provide a low-cost alternative. If insurance would cost more than 8% of the person’s income, that individual will be exempt; otherwise, the individual would need to pay an annual penalty to the government. This penalty will be assessed relative to the individual’s income.
– All insurance companies must provide cafeteria plans that can cover a wide array of insureds. Applicants can no longer be turned away due to preexisting conditions, and women cannot be charged more for insurance than men. The cost of premiums will be regulated and rates will be determined in part by the free market.
– All states must offer an insurance exchange for low-income people. These will interact with Medicare and Medicaid, but they are primarily aimed at people whose income is too high to qualify for Medicaid but cannot afford insurance individually.
What is the Purpose of this Act?
Many people are critical of the Affordable Healthcare Act. They distrust government involvement and regulation of health insurance, and they do not like the penalties levied against people who refuse to pay for coverage. Additionally, the act may add an additional expense to some large businesses or people with very high incomes.
The primary purpose of requiring all Americans to buy health insurance is that it will ultimately reduce the cost of premiums. The reason why group health insurance has always been cheaper than individual coverage is that all insureds share risk under a group health plan. The Affordable Healthcare Act extends this principle to a larger population, essentially allowing risk to be shared across the nation’s entire population.
Currently, insurance companies can refuse coverage to people with preexisting conditions; they can also charge higher rates to people due to gender, medical history and other factors that affect that individual’s risk. The insurance company handles premiums this way to prevent people from only purchasing insurance when they are sick, thus causing the company to lose money on claims.
Unfortunately, this means that individual health insurance can be prohibitively expensive, and people with preexisting conditions may find it impossible to obtain affordable healthcare. By requiring everyone to carry insurance, this problem can be avoided and insurance companies can charge lower rates without losing profits.
What Does the Law Mean for Me?
If you already have health insurance, you will probably not be majorly affected by the changes mandated by the act. Your healthcare provider may enact some changes that will affect your policy, however, such as offering a wider variety of cafeteria plan options or even reducing your rates.
If you do not have health insurance, you will be required to purchase an individual policy by 2014. You will have the choice between multiple individual policy providers, and low-income options will be available through the insurance exchange if you require them. Coverages will most likely be less expensive than policies currently available to you; if you’ve gotten a quote for individual insurance in the past, it will probably be substantially higher than it will be after the act takes full effect.
For example, a family of four with an annual income of $40,000 would qualify for insurance through a state exchange program. Coverage would cost between $1,600 and $2,520 annually for the family, and the maximum out-of-pocket cost for the family would be no more than 15% of the total cost of insurance.
This is a substantial decrease from current premiums. The average cost of insurance for a family policy is over $13,000 according to research from the Kaiser Family Foundation. Although people with higher incomes will pay more for insurance through the insurance exchange than low-income families, the premiums will still be lower than the current average.
For example, a family of four with a $90,000 annual income would only pay a maximum of $8,550 per year for insurance through the insurance exchange. Individual policies should be fairly competitive with these rates and may even be more affordable for people with higher incomes.
Alternatively, you can choose to forgo the insurance and accept the penalty. In the case of the $90,000 family, the annual penalty would cost around $2,085. The $40,000 family would be required to pay the same penalty despite the significantly lower cost of coverage. These penalties will be assessed at the same time as your annual tax return. The government can withhold the funds from your return, but it cannot file suit against you for unpaid penalties.
The amount of the penalty assessed in 2014 will not be the maximum penalty. Instead, the penalty will increase each year until 2016, at which time the full penalties will be assessed. You will be exempt from penalties if the cheapest policy in your area costs more than 8% of your total income.
The Affordable Healthcare Act means that people who had previously saved money by forgoing insurance will no longer have that luxury. Insurance premiums will result in an additional expense that individuals must make room for in their budgets, and this can be an inconvenience for some. It does, however, mean that insurance will become more affordable and that people who wanted insurance but could not afford it will be able to obtain coverage.
Although the future of the act is uncertain, it’s best to prepare yourself for the changes in 2014. By understanding how much you will owe and what your insurance options will be, you can budget accordingly. In the long run, this act should help to reduce not only the cost of insurance but also healthcare costs in general.