How uninsured will cope under new health care law

health care insuranceWe've been seeing a lot of stories about people who say they're healthy and shouldn't be forced to waste the money on health insurance. For example, a recent story in The New York Times talks about a man who earns about $25,000 and never bought health insurance and doesn't think he needs it. He doesn't want to spend money on something he calls a "maybe" -- maybe I'll get sick.

So what happens to these people who decide to forgo insurance in 2014? They may or may not have to pay a tax penalty. But for someone making just $25,000 a year, if he can't find a policy that is no more than 8% of his income or about $167 per month, there would be no tax penalty.

The mandate doesn't require people to buy insurance if the lowest cost option exceeds 8% of one's income. People with incomes below the tax filing threshold also are exempt from the penalty. That threshold for people under 65 was $9,350 for singles and $18,700 in 2009 for couples, and is adjusted each year by the IRS.
Tax penalties for someone in 2014 who does not buy insurance, but is not exempt from the mandate, are $95 or 1% of taxable income. That jumps to $325 or 2% of taxable income in 2015 and $695 or 2.5% of taxable income in 2016. After that, the penalty will be increased annually by the cost-of-living adjustment. Why the mandate? There needs to be a large enough pool of people buying insurance to offset the costs of the insurance companies for covering people with pre-existing conditions.

Let's assume people decide they'll pay the penalty rather than buy health insurance -- what will that mean when they seek health care in an emergency? "The health care system will function as it does now," says Sara Collins, vice president for the Affordable Health Insurance Program at the Commonwealth Fund. "There will continue to be a safety net. You'll still be able to go to an emergency room for emergency care."

For non-emergency care, $11 billion is slated in the bill for community health centers, Collins explains. So people without insurance will be able to use those centers for non-emergency care, but they'll still have to pay the bill. Charges, even today, at community health centers are usually set on a sliding scale based on income.

"People won't be able to call to sign up for insurance while they're in an ambulance being rushed to the hospital," explains Aaron Albright, who is on the staff of the House Committee on Education and Labor. While the regulations still need to be written, he expects that the individual and small business exchanges for buying health insurance will have open enrollment periods each year, as is true today with most employer insurance policies. If you don't buy insurance during the open enrollment period, you'll likely have to wait until the next year.

Collins also expects there will be provisions for people to buy in between open enrollment periods for change of life events, such as a marriage, divorce or adoption of a child. As in group insurance today, specific change of life events do allow the purchase of health insurance between open enrollment periods.

Collins explains that about 60% of the uninsured earn less than 200% of the federal poverty level ($29,140 for a couple and $44,100 for a family of four). So most of them will be eligible for either premium assistance or expanded Medicaid provisions. She's carefully watched what happened in Massachusetts after its mandate and says the program has been successful in encouraging "a lot healthy individuals to buy insurance" to build a large enough insurance pool to offset the costs of those with pre-existing conditions. Massachusetts is a good test case for what will likely happen to the health insurance marketplace in 2014.

But there will still be uninsured. Undocumented immigrants will not be eligible for any government help. Another big group that she thinks will fall through the cracks are people who are newly eligible for Medicaid, but don't realize they can apply for the help. She thinks these two groups will make up about one-third of the 23 million who will still be uninsured after the new law takes effect in 2014. Other uninsured will still find that even with the government help, health insurance is unaffordable for them.

The key will be to get the word out about the new eligibility rules for Medicaid, as well as the premium help that will be available under the new bill. You may be eligible for refundable and advanceable premium tax credits to help buy heath insurance through the exchanges. These credits will limit your premium contributions to the costs of buying health insurance. The government will pay the rest through tax credits.

Here's how the tax credits will be calculated:
  • If you earn up to 133% of the federal poverty level (FPL), the cost of health insurance will be capped at 2% of your income. The rest will be paid using tax credits.
  • If you earn up to 133-150% of FPL, your health insurance costs will be capped at 3% to 4% of income.
  • If you earn up to 150%-200% of FPL, your health insurance costs will be capped at 4% to 6.3% of income.
  • If you earn up to 200-250% of FPL, your health insurance costs will be capped at 6.3% to 8.05% of income.
  • If you earn up to 250-300% of FPL, your health insurance costs will be capped at 8.05% to 9.5% of income.
  • If you earn up to 300-400% of FPL, your health insurance costs will be capped at 9.5% of income.
Any premium costs above your income would mean you are eligible for refundable or advanceable premium tax credits. With advanceable premium tax credits, you won't even have to lay out the money to pay the premiums and wait for a tax credit.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Social Security and Medicare and The Pocket Idiot's Guide to Medicare Part D.
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