Health Insurance Mandate

Health Reform Legislation Includes a Mandate for Health Coverage

Health reform includes a health insurance mandate.. zorani/iStockphoto

One of the more controversial parts of the health reform legislation is the issue of a health insurance mandate – the requirement that starting in 2014, all Americans must have healthcare coverage.

Virtually all Americans will be affected in some way with the enactment of the Patient Protection and Affordable Care Act, which President Obama signed into law on March 23, 2010.

The vast majority of people in this country have health insurance through work or a public plan such as Medicare and Medicaid.

The mandate, therefore, targets the portion of Americans who do not have health insurance.

How you are impacted personally depends on how the fine details of the legislation are implemented. The following may answer some of your questions about the health coverage mandate.

Must I Have Health Insurance?

Starting in 2014 all U.S. citizens and legal residents will have to have health insurance, or what is known as qualifying health coverage, which includes coverage through your job, a government plan (such as Medicaid, Medicare, Veterans Administration, and the Armed Services), or a health plan you have purchased on your own.

If you don’t have health insurance, you will pay a tax penalty that will be phased in starting in 2014 with a fine of $95. In 2015, the penalty will increase to $325, and in 2016 to $695 or a percentage of your taxable income. After 2016, your penalty will be increased every year according to the changes in the cost of living.

Are Exemptions or Help Available?

You may be eligible for an exemption or you may be able to get help paying for health insurance it if your income is low.

Exemptions will be granted for the following:

  • you have a financial hardship
  • you have a genuine religious objection
  • you are an American Indians
  • you have been without health coverage for less than three months
  • you are an undocumented immigrant
  • you are in prison
  • the lowest cost health plan available in your area exceeds 8% of your income

Starting in 2014, Medicaid will expand to include Americans under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% of the federal poverty level (or roughly between $14,000 and $15,000 for an individual). Therefore, if your income is near this poverty level, you (and your family members) will automatically qualify for Medicaid.

Update: The Supreme Court ruled that states don't have to expand their Medicaid programs to cover everyone with an income below 133 percent of federal poverty level. Some states have chosen not to expand their Medicaid programs. This means you may not be eligible for Medicaid even if your income is less than 133 percent of poverty level if you live in a state that isn't expanding its Medicaid coverage. Find out whether or not your state is expanding its Medicaid coverage here.

A Dr. Mike definition: Federal Poverty Level - At the beginning of each year, the federal government releases an “official” income level for poverty. This amount is the minimum yearly income that an individual or family needs to be able to provide for basic needs such as food and housing. The actual dollar amount changes each year and varies based on the number of people in a family. The Federal Poverty Level is used to determine someone’s eligibility for government programs such as Medicaid.

If your yearly income is higher than 133% of the federal poverty level but less than 400% of the poverty level (about $43,000 for an individual), you will get a tax credit to help you pay your health plan’s premiums and out-of-pocket expenses. This will come to you as a tax rebate even if you do not owe any income taxes. And, the lower your income, the higher the tax rebate.

What If I Still Can’t Afford Coverage?

There may be some people who cannot afford to pay for health insurance premiums even with a subsidy, or tax rebate. If this is your situation you can ask for an exemption based on financial hardship.

If I Buy Insurance, Can a Health Plan Turn Me Down If I'm Sick?

No! Starting six months after passage of the health reform bill, your health plan cannot deny coverage of pre-existing conditions for children. Starting in 2014, this provision will apply to adults as well.

Will I Have to Pay Higher Taxes Because of Health Reform?

Effective January 1, 2013, individuals who earn more than $200,000 a year or couples earning more than $250,000 a year – about 2% of Americans – will see an increase in their income-related taxes, including:

  • An extra charge of 0.9% for Medicare Part A hospital insurance, an increase from 1.45% to 2.35% – for example, if you are an affluent family with an annual income of $350,000, you will pay an additional $900 a year in Medicare taxes.
  • Impose a 3.8% Medicare tax on unearned income such as dividends and royalties. Currently, you pay Medicare taxes only on earned income, such as salary from your job or revenue from self-employment.

However, there are some tax-related issues that may affect a greater number of people. These include:

  • The tax penalty for not having health insurance to be phased-in starting in 2014.
  • Some changes to how you manage a health savings account (HSA). Starting January 1, 2011, you can no longer be reimbursed on a tax-free basis for the costs of over-the-counter medications. And, the tax on distributions from your HSA that is not used for qualified medical expenses will increase from 10% to 20%.
  • If you itemize income tax deductions on Schedule A, effective January 1, 2013 the threshold for the itemized deduction for your medical expenses will be increased from 7.5% of adjusted gross income to 10% of adjusted gross income. This increase will be waived if you are 65 or older for tax years 2013 through 2016. For example, currently, if your adjusted gross income is $80,000, you can only deduct appropriate medical expenses in excess of 7.5% of the 80,000 – or $6,000. For tax year 2013, that amount will go up to 10%, or $8,000.

Additionally, there are some taxes that are not directly aimed at you that could have an effect on you. For example, fees imposed on pharmaceutical and health insurance companies could increase the cost of their products, which may be passed onto you. Interestingly, tanning bed services will be taxed 10%, which may be may be good for health — you’re better off getting some natural sunshine!

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