Recently, the Supreme Court ruled that almost the entire Patient Protection and Affordable Care Act is constitutional, and it is set to continue rolling out changes. Some changes, such as dependents remaining on their parents’ insurance until age 26, the end to the practice of rescission, and an end to caps on “essential” benefits, are already in effect. Others will be phased in over the next few years.
The item of interest to most people, though, is the individual mandate, which requires everyone to purchase at least basic health coverage — or pay a penalty.
What Kind of Penalty are We Talking About?
For the most part, the penalty is fairly straightforward. It phases in, starting in 2014 with a cap of $285 per family ($95 for singles) or 1% of income, whichever is higher. The cap jumps to $975 per family ($325) or 2% of income in 2015, and heads up to $2,075 ($625) or 2.5% of income. Especially in the first two years, there are expectations that some will just opt to pay the penalty, since it might make more sense for the wallet.
Or not pay the penalty. The law makes it clear that failure to pay the penalty will not result in criminal charges, nor will it result in tax liens or levies. The only thing that can be done to enforce the penalty is for the IRS to keep back your tax refund to pay the penalty. And, of course, there are some exemptions for religious positions and other circumstances. There are subsidies from the government to help pay premiums, and if the premiums are still beyond 8% of your income after the subsidies and employer contributions, you don’t have to get insurance coverage, or pay the penalty.
The Affordable Care Act also comes with other tax consequences, which will be phased in at different times. Some of these taxes, like the penalty on certain employers that don’t provide coverage (2014), the Medicare tax on high earners (2013), a tax on “Cadillac” health plans (2018), and the investment income surtax (2013), are unlikely to directly affect most of us, although there will be some impacts felt, especially in terms of how employers are able to handle the new state of things.
Excise taxes on indoor tanning (2010) already affects some of the population, and the excise tax on medical devices (2013) is likely to impact many. More of us are affected by the new cap on Flexible Spending Account contributions, and there will be a change in medical expense deductions (2013), requiring that expenses exceed 10% — instead of 7.5% — of your AGI in order to itemize.
State Insurance Exchanges
Insurance exchanges are supposed to be online by 2014, and provide access to competitive plans. Small businesses (larger companies can access exchanges in 2017), the self-employed, unemployed and retirees not eligible for Medicare will all have access to state exchanges. It’s possible for states to set up joint exchanges, allowing for “shopping” across some state lines. Federal subsidies will help startup the exchanges, and there will be premium subsidies available for those who can’t afford plan rates. Insurers are also required to provide comparable plans, and the same rates, to those who don’t qualify to shop on the state exchanges.
There are changes coming, and you will likely be affected, in some way, by the Affordable Care Act.