Affordable Care Act Summary for Self-Employed, Unemployed, and Early Retirees

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Much of the discussion around The Patient Protection and Affordable Care Act (PPACA) aka Affordable Care Act aka Obamacare has been about politics. But it’s the law, it’s constitutional, and a lot of things are happening soon. For most full-time workers that wish to keep their employer-provided health insurance, little will change. However, things will be very different for the self-employed, unemployed, uninsured, and those seeking semi-retirement or retirement before age 65 and Medicare. You can use it even if you already have employer-provided insurance, although you may become ineligible for certain tax credits. There’s way too much information to cover everything, but here’s my summary of the developments.

Health Insurance Marketplaces
Every state will soon have a Health Insurance Marketplace where individuals, families, and small business owners can shop online for insurance. Open enrollment will start October 1, 2013. Coverage will start January 1, 2014. As early as June 2013, the website promises to have more details (sign up for updates). So far 18 states and the District of Columbia have elected to have state-run exchanges. 25 states will have federally-run exchanges. 7 states elected to have planned partnership exchanges where the responsibility is shared. Here is the state-by-state list.

(Even members of Congress will be buying their insurance from these Marketplaces in 2014. So at least the D.C. plans will be affordable. ;))

Application Process
You will be able to apply online, by phone, in-person, or by mail. The latest draft is a simple 3-page application [PDF] which is refreshingly short and simple.

The biggest difference is that the PPACA doesn’t allow insurers to deny people with pre-existing or chronic conditions, so they don’t even ask. I’ve filled out individual health insurance applications at sites like eHealthInsurance and will ask for your entire medical history. There will still be a price difference based on age, but the law states that you can only charge an older person a maximum of three times as much as the youngest adult they cover.

Another nice feature is that if you apply online, you’ll enter your income details and be able to see your tax credit immediately. Even better, it will be sent directly to the insurer thus directly lowering your out-of-pocket costs without having to wait to file a tax return.

Tax Credits and Subsidies
A majority of households will get some sort of tax break. There will be subsidies provided to households with annual income up to 400% of the federal poverty level (FPL) (~$88,000 for a family of four). Individuals and families earning less than 250% of FPL (~$27,000 for an individual and ~$55,000 for a family of four) are also eligible for additional cost-sharing credits.

Plan Options: Bronze, Silver, Gold, Platinum
Each state will have their own set of plan options, broken down into four tiers: Bronze, Gold, Silver, and Platinum. All must cover “essential benefits” as well as match the benefits of a benchmark “typical employer plan” from a major provider.

The four levels are based on actuarial value (AV), which is a fancy way of saying how much of the total healthcare costs the plan will cover. For example, the Bronze level has an AV of 60%, which means the deductibles, copays, coinsurance, and annual out-of-pocket caps are set so that on average the plan pays 60% and the consumer pays 40%. The AV for Silver is 70%, Gold is 80%, and Platinum is 90%. As you’d expect, Bronze is the cheapest and Platinum is the most expensive. The Congressional Budget Office estimated that the annual premium for a bronze plan would be roughly $5,000 for a single person (~$400 a month) and roughly $12,000 for a family (~1,000 a month), but that is before subsidies. I’d wait until the exchanges actually go online before trusting these estimates.

For 2014, individuals who are not covered by an acceptable insurance policy will be charged an annual penalty of $95 or 1% of income over the filing minimum, whichever is greater; this will rise to a minimum of $695 ($2,085 for families) or 2.5% of income over the filing minimum by 2016. This penalty (ahem, tax) cannot exceed the national average premium for Bronze health plans. This means that for a healthy person, it may be much cheaper to simply pay the penalty and just sign up for insurance if and when they get sick, as you won’t be denied coverage due to pre-existing conditions like the old days. See this WaPo article for more.

If you currently have a good individual plan or high-deductible health plan that you like, my understanding is that you’ll be allowed to keep it as you long as you keep renewing.

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  1. For somebody who usually shoot strait this is an extremely poor look at Obamcare. I work in healthcare and just as 2-3 Democrat Senators have declared this is going to be a train wreck. First off the 3 page app was 27 and as reported by WSJ last Saturday it got shorter by making the print smaller and the spaces to write smaller and by only making it for one person and refering you to other forms to be filled out.
    But the biggest lie is the one put out by Obama that you go along with and that is that if you like your insurance or MD you can keep them. Millions of people will be without because companies have already said that they will drop their current insurance and pay the fine instead. The rules kick in for companies that have over 50 full time employees so many companies are also either laying people off to get under 50 or trading 1 full time for 2 part time people. Also, you can keep your old policy if it is offered but if you make any change in it whatsoever you lose that policy and fall into one aproved by Obamacare. I work at a local major medical center and we had a meeting last week and were told that they(managers) currently don’t have a clue what things will be like 6-12 months from now. Obamacare was 2500 pages to start with and all of the rules haven’t been written yet and already the ones that have been written make a stack of paper 7.5 feet tall. I could go on but don’t have time. But look up what Max Bacus aDemocrat Senator has said about Obamacare in the last few months.

  2. @Greg, did you look at the 3-page app he linked to in the post? Like he said, this isn’t supposed to be a political post. If you don’t like the Affordable Healthcare Act, you can write or call your Congressperson. Meanwhile, it is the law so it would be nice if we knew how it affects us.

  3. Here’s an important quotation from the article Jonathan linked to:

    “In a way, paying the mandate is like buying an option to purchase insurance at some future date, when you need it more, for a price that you could never have gotten before the mandate.
    But let’s say you try to eke out an even better deal than that: Let’s say you don’t buy insurance and you simply refuse to pay the mandate. What can the government do to make you pay?
    Well, unlike if you refuse to pay your taxes, it can’t throw you in jail or put a lien on your home or other property (page 336 of the legislation). It can potentially reduce your tax refund, but that’s really it. If you’re not getting a tax refund, you’re free and clear.”

    Does anyone know if this is still the case? If so, it sounds like the best strategy for many of us will be to simply ignore the mandate and, if necessary, adjust our witholding to minimize/eliminate our tax refund. (I’m guessing most readers of this blog already arrange things so that they don’t get a very large tax refund anyway.)

  4. ameridan says

    Under Penalties, I think you mean 2014 rather than 2004. Great summary!

  5. Appreciate the research, Jonathan. It will be interesting to see how this all plays out after the dust settles in 5-10 years. I’m definitely thinking of retiring to a country that takes care of the bare minimum healthcare needs of it’s citizens. It’s sad that the US healthcare market is so screwed up and that political gridlock prevents any substantial change. Hopefully this law will be a step in the right direction to fixing the broken employer based healthcare system in place right now.

  6. Andrew, you’re right, the IRS won’t put a lien on your house for the tax penalty, but you will still continue to owe the tax going forward. I imagine they will still charge interest on your unpaid tax liability. So, I guess you could go this route for years, but all you’re doing is building up a tax liability with the IRS. If there’s one entity you don’t want to continue to owe money to, it’s the IRS.

    It will be interesting to see how this all works out. My state (and 32 others) aren’t even going to have a health exchange. My state also decided not to increase Medicaid so the poor could have health insurance. We even had a couple of state senators trying to pass a bill that would make it a felony for any group to help administer Obamacare. Even though I’m a Republican, I’m convinced this thing is 99% political.

  7. If your income is 133% or less of the federal poverty line then you’ll qualify for medicaid. Thats an increase from the previous income limits. So its another change that will impact some folks.

  8. Andrew: I don’t know for sure if you can get away with ignoring the mandate. But I’d say the best strategy for everyone is to have some form of health insurance. Eventually you will get sick or injured and have a hefty bill to pay. Its not really a matter of ‘if’ but ‘when’. Even young and healthy people get old and sick eventually. Don’t assume you’ll save money by having the government pay for the bill after the fact.

  9. This is great to know and, honestly, all in all much better than what I was expecting. I actually think this will be great for my family.

  10. So will Medicaid pick up the tab for people who can’t afford the premiums or the penalty? Regardless of age, gender, pregnancy/child status, etc? There are still plenty of people who are not working.

  11. “If you currently have a good individual plan or high-deductible health plan that you like, my understanding is that you’ll be allowed to keep it as you long as you keep renewing.”

    This is true. However, I believe they will not be accepting new policy holders. This means as time goes on prices will only go up because the group gets smaller. People leave because the cost went up so prices go up more. Its a cyclical issue and it will kill these grandfathered in plan rather quickly.

  12. @Greg – I agree there are a lot of unknowns, most importantly actual cost. But I chose not to speculate. You seem to make a put a lot of weight on what a few democratic senators are saying, as if they knew either.

    @Andrew – I wouldn’t put too much weigh on that part, I would still view the penalty as a tax and not choose to ignore it.

    My main point is that the penalty might be too small to deter people from simply not buying insurance until they really need it. I’m thinking mostly young, single people as I’d guess most families would prefer coverage. However, if the subsidies are good enough, most people may decide the cost of coverage is worth it. To make the individual mandate work, healthy workers have to participate.

    @Ameridan – Thanks, fixed!

    @Spencer – I think it will be interesting as well. Since you are military, you’re not planning staying the 20 years and using Tricare?

  13. Jonathan The only reason I am putting weight on what the Democrat Senators are saying is that these are the very Senators that pushed it thru in the first place.
    Andrew It isn’t political its factual. And for that matter I wager yoiu that I have done more research on this than anybody reading this. I am a big fan of Jonathan’s but he did a summary of an overview. I worry because it affects my occupation.
    Also the reason the 32 governors didn’t sign up for the exchanges is first the states would have to pay for the exchange and second and the main reason is it is a bait and switch where the Feds pay 100% of the bill for medicaid patients the first year then 90% and on down. Under the rules mentioned about 41% of the residents of my state would qualify. To keep it going within a few years state taxes will go sky high.

  14. Noble Drusus says

    Jonathan, you ought not perpetuate the lie “For most full-time workers that wish to keep their employer-provided health insurance, little will change.” Requirements of the PPACA include covering hourly workers over 30 hrs/wk; already several employers have been in the news after cutting all hourly workers to 29hrs. Additionally, since the PPACA does not address the problem of increasing costs (it actually has provisions that increase cost), it is likely that employers who face large increases in premiums will choose instead the paltry penalty of a few hundred dollars for not covering their employees rather than the tens of thousands of dollars they pay in compensation in the form of premiums.

    There will in fact be a tremendous effect on most full-time workers that wish to keep their employer-provided health insurance, and the change will be very negative. If you prefer to have a non-political stance on the personal finance aspects of the PPACA you might want to consider removing that lie from your opening paragraph.

  15. Thanks for the post. There’s a lot of helpful information.

    For most full-time workers that wish to keep their employer-provided health insurance, little will change

    Anybody with employer-provided health care (particularly from small businesses) might want to reconsider the above sentiment and pay close attention to the information about the exchanges! I manage the healthcare plan (currently BCBS) for a small business. With about 15 employees on the plan, our rates are going up by over 41% next year. That’s double the largest annual increase we’ve ever had before.

    The tax credit covers less than 10% of the premiums we pay (not to mention our time spent!).

    We’ve offered healthcare since our founding over 40 years ago. We never planned to drop it, but once the exchange opens, we’re seriously considering dropping.

  16. Employers now don’t cover their employees out of the goodness of their hearts; they do so because otherwise it would make them uncompetitive in attracting talent. That won’t change. Lot of people may “think about” cutting benefits, but PPACA or no PPACA, insurance premiums have been going up for a long time.

    The survey done in this article is one place where I base my statement:

    According to a January 2013 survey (PDF) done by the Pepperdine Private Capital Markets Project at Pepperdine University, 49 percent of small- and midsize businesses said they will keep their employee health-care coverage but make tweaks, such as shopping for cheaper rates; 39 percent said they would make no changes to their coverage; and 12 percent said they would drop coverage and either pay a penalty or switch to a defined contribution health-care plan

    That means 88% plan to keep providing healthcare coverage, thus “most”. I would bet that the percentage is even higher for large businesses.

    After health reform passed in Massachusetts in 2006, the number of businesses offering insurance coverage increased because potential employees—worried about penalties for being uninsured—were more inclined to take jobs with companies offering benefits, Chase says.

    If you opt to buy employee health care through a SHOP exchange in 2014, and your business employs fewer than 25 FTEs with average annual wages below $50,000, you may be able to claim a tax credit for up to 50 percent of your cost.

    I too worry that costs will rise. But if my statement was wrong, that means that most people with employer-provided coverage currently will LOSE their coverage as a result of PPACA. I simply don’t see any evidence of that.

  17. Lifetime Tricare benefits for 20 year military retirees is one of the principal benefits of a military retirement. However, with the current climate of downsizes, budget cuts, and military benefits that were once sacrosanct on the table, I don’t want to rely on Tricare 100%. I believe, like Social Security, that the Tricare insurance will continue to exist in some form for my lifetime. How good a system it is will depend on a lot of factors.

    I also don’t want to stay in for 20 because I need the lifetime Tricare benefits. I would be much happier knowing that I was financially independent and could cover my own medical insurance by the 14 or 15 year mark and serve my last 5-6 years because I want to, not because I have to.

  18. I wish they allow catastrophic plan for people over 30 years. Since I am 30 and $400 a month for Bronze plan is still too much. I assume even after subsidies it won’t be less than 300 for me. So I must keep my part time work to maintain my health benefits (in my case I qualify at 60 hours a month per union contract to qualify for Platinum plan). Else as self employed I could make a lot more money, but not yet enough to give up my employer-sponsored platinum plan.

  19. “For most full-time workers that wish to keep their employer-provided health insurance, little will change.”

    I wish that were the case. At my job, we’ve already been told our premiums will be going up substantially in 2014. And I’m sure 2015 will be worse.

    And if you think they’re won’t be doctor shortages and much longer wait times to see them, you’re kidding yourself. My wife’s OBGYN (who delivered our two children) is a great doctor, but is at the age that he’s said he will retire rather than deal with the nightmare that is Obamacare.

  20. I do not have insurance, but I use the VA. I’m not retired form the military or disabled, so I’m in the lowest category (8 I think). I pay for the services I use at the VA (the most it is possible to pay, which is still a great deal). I do not pay a monthly premium.

    In the article I saw the phrase “acceptable insurance policy”. Is the VA considered acceptable insurance?

  21. I have a question that I’m hoping someone more knowledgeable can help answer.

    Basically, I have a relative that’s planning to retire early, but they’re not old enough to receive Medicare just yet.

    So they were planning to pay out of pocket for a few years. Now in their case, they have no income, but will have a decently large retirement account and savings.

    In this case, are they still eligible for Medicaid or other subsidies?

    Thanks for any help in this area!

  22. Jonathan,

    You’re absolutely right that insurance premiums have been rapidly climbing for a long time. As I said, our rate increase for 2013-14 is 41%! We’ve never seen larger than about 20% before, and that was several years ago.

    We could easily increase salaries and simply forget the whole hassle of providing healthcare. Isn’t that the point of the exchanges?

    If you opt to buy employee health care through a SHOP exchange in 2014, and your business employs fewer than 25 FTEs with average annual wages below $50,000, you may be able to claim a tax credit for up to 50 percent of your cost.

    Your cite about the healthcare credit is not particularly truthful (the cite–not you!). It may be true that SOME small businesses can get up to 50% of their costs defrayed–or somewhere in that ballpark–but not very many businesses, only those with a very small number (2-3?) of employees! We had something like 14 FTE equivalent employees in 2012 and the credit we received was about 13% of what we paid for insurance.

    Also, I would somewhat disagree with your claim that businesses only offer healthcare to be competitive in attracting employees. It is, of course, true that healthcare is a nice benefit, but a lot of small businesses really operate like families! It’s a lot harder to be totally impersonal in a smal business than it is in a corporation, government, or other large entity (I know, having worked in botI’ve worked in both, and I know which I prefer).

    The Obamacare line has always been “if you like your plan, you won’t have to change, and employers won’t drop.” I do not believe this is the case, and I honestly don’t think the authors of Obamacare believed it to be true either.

    In my view Obamacare is a horrible middle platform. It does nothing to control costs, while greatly increasing costs for insurance companies. Insurance companies have to cover people who SHOULDN’T have insurance, adult children, more procedures, etc. No kidding that costs go up! The authors of course knew this (how could they not?). It’s the first step to single payer. I tend to be a pretty libertarian type but I’m not horrified by the idea of single payer.

  23. AdirondackJack says

    Thank you for the post Jonathan. I’m hoping that you (or someone else) can clear up a question that comes to mind after reading your summary. You say that PPACA doesn’t allow insurers to deny people with pre-existing or chronic conditions. While that may be true, claims associated with pre-existing conditions often have an exclusionary period before they are covered.

    For example, in New York state (and perhaps others, but I can only speak for New York) if I let my health insurance lapse for more than two months, then I have a period (can’t remember if it’s 6 or 12 months) before the insurance company will cover any costs associated with a pre existing condition.

    If this is the case, then simply paying the $95 penalty and then waiting until you need insurance to purchase it is not really a viable strategy. However, if there is no exclusionary period, then the $95 penalty option is definitely worth considering, although one could still be exposed to significant financial risk in the time period between needing insurance, applying for it, and being covered. And, any kind of traumatic accident that requires immediate care still presents significant financial risk.

    On another note, $417 a month for a plan that covers just 60% of your expected health care costs does not seem like a bargain. The subsidy schedule will really determine how viable these plans are from a cost perspective.

  24. any information on those of us with cobras that will expire mid year 2014

  25. @Kuzbad:
    “Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.”

    See this link:

  26. Katie W. says

    If you have a cobra plan it will eventually expire and at that point you’ll be just like anyone else with a discontinued plan. Probably should be taking a serious look towards the end of this year at what you’ll to replace it.

    I hope the cost benefits of high deductible plans and an HSA will be explained and understood better by the young and healthy group.

  27. You can keep your current plan, sure. But if it isn’t an Affordable Healthcare Act approved plan, you will still pay the penalty as if you had no coverage. Too much fine print and too many unknowns for this to be in effect Jan 1st. But they had I pass the Act to find out what was in it.

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