If you are employed, you will want to familiarize yourself with the new health reform changes — whether your employer provides insurance for you or not. In this article, we attempt to highlight the major changes and how they may impact you.
Penalty for Not Having Insurance
The Affordable Care Act requires all Americans to purchase health insurance or pay a penalty. In 2014, individuals will be able to purchase insurance through their state’s exchange. If you or your dependents do not have coverage starting in 2014, you will likely pay an individual penalty:
- 2014 Penalty Amount: $95 per adult and $47.50 for each child* or 1 percent of gross adjustable income, whichever is greater
- 2015 Penalty Amount: $325 per adult and $162.50 for each child* or 2 percent of gross adjustable income, whichever is greater
- 2016 Penalty Amount: $695 per adult and $347.50 for each child* or 2.5 percent of gross adjustable income, whichever is greater
*The fixed dollar amount is capped at three times the adult rate for larger families.
The first time you or your family could encounter this penalty is when you fill out your tax return for 2014. Although a “coverage gap” of up to three months is allowed without any penalty, you should be aware that if you, a spouse or any dependent does not have coverage for more than three months, the full percentage penalty of your entire household’s gross adjustable income will be triggered if that is the largest of the two options above (which it often will be). See our breakdown of how this penalty is calculated or visit our Obamacare penalty calculator.
There are some exemptions to the penalty that will allow you to avoid paying a tax penalty if you don’t have insurance. These are listed on this IRS page.
Federal Tax Credits
You or your dependents may qualify for a premium tax credit (also referred to as a subsidy) to help with the purchase of insurance. In order to qualify for a subsidy, you must meet the following conditions: Your household income must be less than 400 percent of the federal poverty level and, if someone in your household receives coverage from their employer, that employee’s health plan must cost that family member more than 9.5 percent of the household’s annual income.
To see where your annual income falls as a percentage of the federal poverty level, visit our subsidy calculator.
If no employed family member is paying more than 9.5 percent of household income for his or her employee-sponsored plan, the only other way your family could qualify for a premium tax credit is if the employer’s health plan (and every other employer health plan in the family) failed to meet the Affordable Care Act’s definition of “minimum essential coverage.” Most employer’s health plans do meet the definition of minimum essential coverage.
State Exchange Marketplace vs. Employer Coverage
If you qualify for a federal tax credit (subsidy), the remaining premium you are responsible for is going to be very affordable in most cases. But keep in mind that you will be paying for this premium with dollars that have been taxed, whereas your share of the premium for an employer plan is usually paid with pretax dollars that have not been touched by federal income or FICA taxes.
Employer coverage generally offers richer benefit plans with low deductibles and low copay options compared to individual coverage. So if you do not qualify for a subsidy because you have employer coverage, the employer coverage will likely be the better option.
Where Do I Get Help?
If you are looking for some assistance in deciding between an Obamacare plan and an employer-provided plan, we have listed a few resources below to help you make the best possible decision:
- The Affordable-Insurance Subsidy Calculator: Our calculator tells you where you fall on the federal poverty level and the estimated price of a silver plan based on your household size and income.
- Healthcare.gov: This is the official heath insurance marketplace website for 36 states. Early on, it has gained a reputation for poor performance and errors, so proceed at your own risk.
- Internal Revenue Service: The IRS offers a lot of resources to help taxpayers figure out where they stand under the Affordable Care Act.
- Department of Health and Human Services: Although one aim of this website is to provide positive public relations for Obamacare, it does offer some good definitions an updates regarding the new law.