Stewart Melvin & Frost attorney Steve Cornelison recently discussed the impact of the new Healthcare Reform law on employers – both small and large. In part II of the Q&A, we will shift our focus to individuals and address some of the most common questions on this.
Steve specializes in employee benefits and retirement programs, taxes, and other aspects of business law – including the new Healthcare Reform law. He is a partner with Stewart Melvin & Frost – an uncommon practice and one of the region’s oldest and largest law firms.
Question: Let’s start with the biggest question involving individuals and Healthcare Reform. After January 1, 2014, is everyone required to have health insurance?
Steve: There are some exceptions, but the answer is yes for the most part. Under the Affordable Care Act, you are required to purchase and maintain a specific level of health insurance. This requirement is called the “individual mandate” and it has already been upheld by the U.S. Supreme Court – back in July of 2012.
Question: What is the penalty if an individual refuses to purchase health insurance?
Steve: There is indeed a fine. But in the first year of Healthcare Reform, the penalty is relatively small – the greater of $95 for single coverage or 1 percent of your household income. This penalty most likely will be less than the cost of purchasing health insurance. So it will be interesting to see how many individuals opt out next year and simply choose to incur the fine instead.
After 2014, the fine begins to increase incrementally each year until reaching a limit in 2016 of $695 or 2.5 percent of household income, whichever is larger.
One other side note about this penalty: If you do not carry health insurance for your children, the fine for them is half of the adult rate. Families will be charged for up to three children. And you also will be fined for any other dependents that you list on your tax return – if they do not carry health insurance.
Question: You mentioned that there were a few exceptions to the insurance mandate. What are some of those exceptions?
Steve: If you are between jobs and have not had health insurance for up to three months, then you are not required to immediately purchase health insurance.
Other exceptions include:
oThose with religious objections;
oPeople incarcerated in prison;
oMembers of an Indian tribe.
And yet another exception is based on financial difficulty. The guidelines are somewhat complex. Basically, if your individual or family income is below the level required for filing income taxes, then you are exempt. In 2013, those levels were $10,000 annual income for individuals and $20,000 for households.
Furthermore, the “affordability” of the healthcare insurance that you are purchasing could be another exception. If the cost of your medical coverage is more than 8 percent of your income – even after employer contributions or federal assistance – then you also are exempt from any penalty if you choose not to cover yourself.
Question: That raises an interesting point: The Affordable Healthcare Act is intended to provide healthcare to all individuals. So what happens if you desire coverage but cannot afford to buy healthcare insurance?
Steve: There are basically two options: You can either receive Medicaid insurance through the state or assistance from the federal government.
The U.S. Supreme Court earlier ruled that the states are not required to take on the additional cost of Medicaid expansion under healthcare reform. The state of Georgia, primarily for budget reasons, decided not to take on any additional Medicaid costs.
So, the federal government will now pick up the cost of the expanded Medicaid rolls in Georgia for the first few years. Under the new federal healthcare law, Medicaid will extend to any household with income up to 138 percent of the federal poverty level – about $32,000/year for a family of four.
There have been questions raised about some people who may get caught in between – they are too poor to afford health insurance but don’t meet the income requirements of Medicaid. Even if they are exempt from the penalties, they still cannot afford to have coverage, and this is a gap that the new law doesn’t seem to address.
Question: If you don’t have health insurance through your employer, how will individuals and/or families go about purchasing it?
Steve: You can still go through the traditional route of contacting an insurance agent – there are many excellent ones here in our community.
The other option will be marketplace exchanges that are being set up by some states. In Georgia, that is not the case, because the state chose not to participate. So the federal government will be providing that option to residents of Georgia through a new federal Health Insurance Markeplace that is scheduled to open in October. If you don’t want to navigate this option on your own, your local insurance agent should be able to help you – as well as designated “navigators” provided by the exchange.
The federal Marketplace is designed to be a one-stop shop for health insurance that allows you to choose from multiple policies offered by participating insurance providers. Anyone can choose to go to the Marketplace. However, if you will need federal assistance to purchase your health insurance, you will be required to go through the federal exchange.
On the employer side, I’d like to mention that all businesses – large and small – are required to give notice about the healthcare exchanges no later than Oct. 1, 2013 (and to new hires not less than 14 days after their hire). This applies whether or not the employer has a health plan, and there potentially are penalties for failure to comply. The U.S. Department of Labor has published model notices that employers can print out, complete with relevant information and use, to satisfy this federal requirement.
For individuals who are interested in coverage through the exchange, I want to point out that the open enrollment period begins this October and extends through early spring of next year. Thereafter, the enrollment period will be much more limited. So you will need to pay close attention to the timing of these enrollment periods if you plan to purchase insurance through the exchange.