“Last week, I discussed what various tax proposals could mean for you. But tax reform isn’t the only big policy area that could affect your finances over the next few years. What about the health care plan that was actually passed last year and is primarily scheduled to take effect in 2014? We recently received a question on our web site about the effects of the plan.
Let’s start by looking at some of the changes that impact everyone. Insurers have been prohibited from imposing lifetime limits on essential benefits and can’t drop you when you get sick. In 2014, there will also be no annual spending caps in policies.
These reforms can provide greater financial security but at the cost of higher premiums. After all, someone has to pay those unlimited expenses and it could be you, whether you like it or not. That’s because you will be required to purchase health insurance or pay a fine starting in 2014.
If you’re low-income…
Many lower income people struggling to pay skyrocketing premiums will have some relief under the new law. The plan allows people making up to 133% of the the poverty line (or almost $30k for a family of four) to qualify for Medicaid. There are also health insurance subsidies for people making up to 400% of the poverty level (or almost $90k for a family of four).
If you have pre-existing conditions…
People with pre-existing conditions who are not covered by a group plan could also stand to benefit. That’s because it’s been practically impossible to get an affordable health insurance policy in the individual marketplace with a pre-existing condition. This has made it hard for many people to retire before they qualify for Medicare at age 65 unless they have a group retiree health insurance plan through their employer. Now, if you’ve been uninsured for six months, you’re eligible to join a temporary high-risk pool with premiums for a standard population. In 2014, insurers won’t be able to discriminate based on pre-existing conditions at all.
If you’re a parent…
20-somethings have become known as the “boomerang generation” as they’ve had to rely on parents for financial support because of the difficulty in finding a job and the health care that comes with it. They will now be able to stay on your plan until they turn 26. Insurers are also prohibited from excluding pre-existing medical conditions for children under the age of 19.
If you earn over $200k or $250k as a couple…
The health care plan doesn’t come without costs. In 2013, income from wages and self-employment will be subject to an additional .9% tax. A 3.8% tax will also be applied to the lesser of net investment income or the amount by which AGI exceeds $200k (or $250k for a couple). If you expect to be subject to these taxes, you may want to shield as much investment income in Roth accounts as possible.
If you run a small business…
First, until 2014, a temporary reinsurance program reimburses employers or insurers for some of the claims of retirees age 55-64. By 2014, small businesses with under 100 employees will be able to buy health insurance through state pools called Small Business Health Options Programs. The Congressional Budget Office (CBO) estimates that they will only reduce premiums by about 1-4%. However, the new law will also require insurance companies to explain the rationale behind rate increases and states can bar them from the pools if they increase rates without good reason. Unfortunately, this may be causing insurers to raise premiums now before the restrictions take effect.
In addition, companies with 25 or fewer employees with an average pay of up to $40k can get tax credits to help offset the cost of the premiums for the first two years. These credits are estimated to affect about 12% of employees covered under small group insurance and to lower costs by 8-11% a year according to the CBO. Companies with more more than 50 employees that don’t offer health insurance will be fined if any of their employees rely on government subsidies to purchase insurance.
The Future of Health Care Reform
Just because the health care plan was passed doesn’t mean these provisions are set in stone. We’ve already seen the suspension of the law’s long term care feature and there are a growing number of calls to permanently eliminate it. One of the key provisions in the plan, the mandate to purchase health insurance, may be declared unconstitutional by the Supreme Court and every Republican presidential candidate has vowed to repeal it upon taking office.
If the plan is repealed, what would take its place? Most Republican proposals have centered around reducing costs by shifting more of them onto consumers. Some examples are health savings accounts, in which consumers save tax-free to cover high deductibles, and replacing the Medicare program with subsidies for private health insurance in retirement. Like tax policy, the future of health care could be decided in the next election.
The Bottom Line
While no one knows what the exact outcome of health care reform will be, we do know the importance of having health insurance (medical expenses are the leading cause of bankruptcy) and that the costs of health insurance are likely to continue increasing, whether in the form of higher premiums, higher taxes, higher out-of-pocket costs, or some combination of the above. So what’s the take away? Regardless of who you think will win the election, buy health insurance while you can and plan for those higher costs in the future.”