Health Care Reform – Who Must Buy Insurance and How They Are Helped

In March, 2010, sweeping health care reform was enacted through two new laws: the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010. These two laws are commonly referred to together as the Affordable Care Act, or ACA.

The centerpiece of this legislation is the “individual mandate”—the requirement that most individuals have health insurance coverage starting in 2014.  The ACA also calls for the creation of “exchanges”, basically marketplaces where individuals can purchase their insurance with help from the federal government beginning October 1, 2013.  The easiest and most convenient way for affected individuals to have the information needed to complete the enrollment application used to purchase subsidized insurance through an exchange is to timely file their 2012 tax return.

Basics of the mandate:

• Most U.S. citizens and lawfully present aliens will be required to have health insurance for themselves and for their dependents starting in 2014. There are just a few exceptions to this requirement (certain religious exemptions, for example).
• The insurance must meet minimum essential coverage standards. That is, the primary purpose of the insurance must be to provide basic health care benefits. Plans that meet this requirement include:
  • Government-sponsored plans, such as Medicare, Medicaid, Tri-care, and CHIP.
  • Employer-sponsored plans.
  • Private plans.

Insurance that does not have health care as its primary focus, such as an automobile policy with a medical rider, is not minimum essential coverage.

• Individuals who do not qualify for, or have access to health insurance through one of the ways listed above may purchase qualifying health insurance through an exchange – a  marketplace in which the individual has access to a variety of health insurance options. These options are called “platinum,” “gold,” “silver,” or “bronze” plans, depending on the level of coverage. Many states will sponsor their own exchanges, but a federal option will be available to those that live in states without a state sponsored exchange.
• Individuals who purchase insurance through an exchange may qualify for a government-provided subsidy to help pay part of the cost of the premiums.
  • Eligibility for, and the amount of the subsidy depend on the individual’s household income and family size.
  • The subsidy is advanced directly to the insurance company. The individual is responsible for paying the portion of the premium that is not covered by the subsidy.
• Those who do not have or obtain health insurance coverage by 2014 may be subject to a penalty.

How the subsidy works:

• Eligibility for the subsidy will be determined when an individual signs up for insurance through an  exchange. Eligibility for and the size of the subsidy depend on the “household (basically the taxpayer, spouse and their dependents) income” and family size.  For more about household income and family size, see The Importance Of Filing your 2012 Tax Return
• If the individual is eligible for a subsidy, the subsidy amount is advanced directly to the health insurance provider.  The amount of the premium owed will be the net amount after taking in to account the government subsidy. The individual must enroll in a health care plan to receive the subsidy.
• In most instances, information from an individual’s 2012 tax return will be used to determine subsidy eligibility. The subsidy formula is complicated but, in general, as household income goes up, the subsidy decreases and the taxpayer’s share of the premium payment increases.
• An individual who receives a subsidy must file a tax return for the year. When the individual files his or her 2014 tax return during the 2015 filing season, a “true-up” process will determine the exact amount of subsidy due.
  • If the individual is entitled to a higher subsidy, the difference will be paid as a premium tax credit (PTC) on the tax return. The PTC is a refundable credit, meaning that it will be paid even if the individual has no tax liability for the year.
  • If it turns out the individual’s income was higher than estimated at the time of enrollment, the individual may not be entitled to the entire subsidy that was advanced during the year. The individual may have to repay some or all of the subsidy. The amount that has to be repaid also depends on household income and family size.
• It is important to understand that the subsidy provided by the government will not be enough to pay the entire monthly premium for most individuals. The individual is responsible for paying the part of the premium that is not covered by the subsidy.
• Even individuals who are not eligible for any subsidy might find that plans offered on state exchanges are the most affordable options available.  In some cases, these individuals may purchase insurance through the exchange as well, but will have to pay the entire insurance premium to the provider.

For more information and help:

H&R Block has additional information and resources about the new health care reform law and its impacts at hrblock.com/healthcare.  When H&R Block prepares your taxes, you can be sure the exchange will have your tax return information automatically from the IRS.  We’ll also provide you a Tax and Health Care Review with:

• analysis of your tax options under the new health care rules
• your estimated out-of-pocket expense for insurance if you qualify