I just renewed my driver’s license on-line yesterday. It was a breeze. At the same time, I still haven’t been able to actually sign up for the health insurance plan of my choice on California’s exchange; it keeps crashing when I push the button to buy. Doug laughed when I said hopefully someday Covered California will work as well as the DMV. Who ever thought someone would compare something to the DMV and the DMV would win!
We still have until December 15th to get insurance in place for January 1st, so I’ll try not to be too critical yet as I see how it all fleshes out over the coming months.
But I wanted to write a few posts going into more detail about aspects of the new health law that might be of value to you. This one is intended for the folks that the new health care law was actually intended to help—those that don’t have currently have insurance because either they couldn’t afford it, or because they were previously denied coverage for a pre-existing condition.
Starting next year, everyone is required to carry health insurance. If you already have insurance at work, are on Medicare or Medicaid, or have retiree benefits through your previous employer, you probably already meet that requirement for insurance.
But most people without health insurance after March 31, 2014, will face a penalty for not having it. The penalty is relatively minor in 2014, $95 or 1% of your income, whichever is higher. So if you make $50,000 next year and are not covered by insurance, you would likely owe penalty of $500.
I think in most cases, the penalty for not carrying insurance is cheaper than the cost of actually purchasing insurance. But not all cases, as I will show you. The penalty increases each year until 2016, so that same individual making $50,000 would pay a penalty of $1,250 if he didn’t have insurance in 2016.
Of course, the catch is that you don’t have insurance if you opt for the penalty instead of insurance. So if you get sick, you’ll have to cover the costs of your medical care yourself. Even though the new law requires insurance companies to accept everyone, even people with pre-existing conditions, if you don’t sign up during the enrollment period, you won’t be able to get covered until the next open enrollment period, which will run from October 15th through December 7th in future years. So if you have a heart attack in May, you’ll have to pay for it yourself.
For more details on the penalty for not having insurance read here.
For some people though, for just a little more than the cost of the penalty, you can actually avoid the penalty all together and have health insurance too. That’s because if you earn under 400% of the federal poverty level (FPL) ($45,960 for a single person, $62,040 for a couple) there is a cap on how much of your income you are expected to devote to health insurance premiums. That is the “affordable” part of the Affordable Care Act.
The subsidies work on kind of a sliding scale. For example, if you make up to 133% of the FPL, the theory is that you shouldn’t have to spend more than 2% of your income on health insurance premiums. At 400% of the FPL, that threshold increases to 9.5% of your income.
To find out if you qualify for a subsidy and exactly how much it would be, you’ll need to go on your state’s health insurance exchange (start here to find it). That’s because the calculation of the amount of the subsidy is based in part on the cost of the second-cheapest “Silver” plan in the exchange for your area. (For a refresher course on the various “metal” levels of health insurance go here.) To the extent that the cost of the second-cheapest Silver plan in your area exceeds the applicable percentage of your income, you get a subsidy for the difference to buy insurance.
In certain circumstances, you can use the subsidy to directly offset the cost of the monthly premium you pay. Or you can pay the full premium price and file for a refund on your tax return if you meet the applicable income level by the end of the year. To reiterate, you are only eligible for the subsidy if you purchase insurance on the exchange, not if you buy it directly through your insurer or a broker.
Warning: If you estimate your income too low and receive a credit subsidy credit against your monthly premium, you will owe some of it back, and perhaps even a penalty, if your income comes in higher at the end of the year. You are expected to notify your exchange if your income changes during the year. But if you don’t notify them, they will catch up with you anyway when it’s time to file your taxes.
How it all works
This morning a very nice man woke me from my deep sleep to deliver some wine that Doug had ordered on-line. He started his deliveries early today because he needed to rush back to his company; they were holding a seminar for employees on the new health insurance exchange. He was a little miffed that his girlfriend, who makes minimum wage at 7-Eleven, would now be required to get health insurance. He wondered how on earth she would pay for it.
Assuming his girlfriend works full-time, she makes about $16,000 per year at California’s current minimum wage. Our delivery guy looked to be in his mid-40’s so I’m going to guess his girlfriend is 45 and lives in my county. If she opted out of insurance all together, her penalty could be $160 (1% of her income). For less than that, she could have health insurance.
The second cheapest silver plan for a 45-year old in my zip code is about $5,400/year. But because she makes 145% of the FPL, she is only expected to pay a maximum of 4% of her income toward health insurance or $640. The difference of $4,700 is a credit that she can apply to any policy she wants, she is not limited to the Silver plan.
She doesn’t have any insurance now, so I’m thinking that even the Bronze level is going to look pretty good to her. The cheapest Bronze plan would be a little over $4,000/year. After applying her $4,700 credit, she doesn’t have to pay anything for insurance. So she could either pay the $160 penalty and not have insurance or pay nothing and have insurance.
Now of course, the more you make, the more you are expected to pay, but that was the intent after all.
I’ve been reading that more and more people expect to work way beyond age 65. But most of the research shows a large number of people retiring before they really expect to, mostly because of health issues or layoffs. For people that found themselves retired before they were really prepared to be, the subsidies may come in handy. While you are waiting to reach Medicare age, or Social Security age, or even the age at which you can start taking retirement plan distributions, the income you’re generating on your taxable assets might be low enough to qualify you for a subsidy. And that might be just the life-line you need to bridge the gap before you can tap into retirement plans, Social Security, and especially Medicare coverage.
For me the mandate doesn’t mean much. Sure, I’d save a lot of money just paying the fine instead of getting health insurance, but here’s the thing: I want insurance. And I think I’m probably not alone.
Note about comments on this post
I’ve been receiving about a dozen spam comments every day for the last several weeks, so I’ve had to resort to moderating comments. Up to now, any comment that is not spam I have published though.
This post is intended to convey information about how you might be able to save money on insurance under the new rules and what your penalties could be if you fail to get insurance. It is not intended to generate a political debate on the merits or short-comings of the new healthcare law. So in addition to deleting spam comments, on this post, I will also be deleting comments that are purely political commentary or that resort to name-calling to make a point.
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