President Barack Obama signed two healthcare bills PPACA (The Patient Protection and Affordable Care Act) and HCERA (The Health Care and Education Reconciliation Act) in 2010 as a part of new health reform law. PPACA (commonly called as Obamacare) and HCERA will bring overwhelming changes in the U.S. private healthcare system in the next 50 years.
Many provisions of these two new bills will equally impact the American employers and the private health consumers over the coming years. This article discusses about the highlights and new provisions of the bills with respect to the individuals.
Highlights of the bills with respect to individuals:
Compulsory minimum essential coverage: Under the provisions of the new law, by 2014, it will be mandatory for most U.S. citizens, legal resident aliens, and their dependents to have minimum essential health care coverage. It could be in the form of government-sponsored programs like Medicaid, Medicare; employer-sponsored programs like governmental plans, church plans; and individual market plans recognized by the Secretary of Health and Human services.
Exempted individuals: Individuals such as prisoners, undocumented aliens, members of health care sharing ministry (HCSM), and members of recognized religious sects are exempt to have health insurance under the new law. Further, individuals living abroad are assumed to maintain the minimum essential coverage, and therefore exempted.
Failure to maintain coverage leads to penalty: All the above mentioned individuals except those who are exempted need to comply with the new law. Failure to maintain the said coverage will result in monetary penalty. The penalty is calculated on a monthly basis for all the months when there is no health insurance coverage. It can be either a specified percentage of the taxpayer’s annual household income or a flat dollar amount per uninsured adult in the household. For an uninsured individual under the age of 18 the penalty will be half of the adult fee.
Penalty exemptions: Among individuals, some are exempted from paying penalty. These include individuals whose contribution for employer-sponsored coverage is more than 8% of household income, whose income is below the limit for filing a federal income tax return, certain group of native Americans, individuals with short lapse in coverage (up to 3 months), and those who are financially too poor to maintain a health coverage (as determined by Secretary of Health and Human Services).
Dependents are also exempted from the penalty as the penalty is actually paid by the taxpayer who claims for the income tax exemption for the dependent.
Important changes for individual taxpayers
Under the provisions of the new federal law, by 2014, each state has to establish American Health Benefit Exchange (AHBE). The principal objective of AHBE is to create a market pool where individuals can purchase ‘qualified’ health insurance coverage.
Individuals or families who purchase health insurance through an AHBE, become eligible for Refundable Premium Assistance Credit (effective from 2014), which is a refundable tax credit. This is applicable to the households with incomes between 100% and 400% of Federal Poverty Level (FPL), and who are not covered under employer-sponsored health insurance.
The eligible households for premium assistance credit are also eligible for cost-sharing subsidy which reduces the cost of insurance in dollar terms as it compensates for deductibles, co-payments or co-insurance.
The new law gives a new definition of ‘dependent’ for the benefit of health insurance. Under the changed rules, dependents who are under 27 years at the end of the tax year are also included in taxpayer’s health plan (effective 2010).
Under the new law, exceptions to federal income tax law are broader. Thus, it excludes two major receivables from gross income. Firstly, gross income does not include any amounts received from the forgiveness of certain student loans, with some limitations and second exemption is to exclude the amount received under any state loan repayment or loan forgiveness program that is aimed to help individuals get better healthcare services in under-served or health-professional shortage areas.
Seek professional guidance for better understanding
Though the clearly drafted PPACA and HCERA bills are easily available, they are a bit complex to understand for non-professionals. Their scope covers diverse subjects. It is, therefore, advisable to seek guidance from professionals in this regard.