The Affordable Care Act (ACA) – also known as Obamacare – has been in effect for more than three years, but many of its key provisions were designed to roll out over time. The biggest milestone was in March 2014, when the law mandated that all Americans have health care insurance either through the federal program or through the state exchanges.
Three distinct groups of consumers are impacted differently:
- Workers at large companies that offer a health care plan
- Workers at small companies (fewer than 50 employees) or who are self-employed and buy individual insurance
- The uninsured
In each case, the law’s impact features consequences that should be discussed in detail with a trusted financial advisor. Let’s start by examining the effect of the Affordable Care Act on employees at large companies.
For the most part, choosing your insurance coverage for 2014 probably felt more or less like “business as usual.” During your enrollment period, you would have again been allowed to keep or change your plan options. As has always been the case, you will have to have made the usual trade-off between more medical benefits for higher premiums, or less coverage for lower premiums. Your health and that of your family dictated what made the most sense from a cost-benefit standpoint.
Despite the similarities, your 2014 health insurance policy likely features some additional benefits, such as:
- No more limits on lifetime expenses
- An array of preventive services that are now free
- Mandated caps on out-of-pocket expenses
- Rebates on premiums for spending less on medical services than expected (This is a great incentive to eat more salads at lunch and go to the gym!)
But these new benefits likely come at a cost: Your premiums may have increased by between 3 percent and 9 percent because of those changes. Your share of the premium may have increased. Many employers are shifting more of the insurance costs to their employees, although the ACA limits how much. Your premium should remain below 9.5 percent of your income; otherwise your employer may incur penalties.
You may also find your HR department giving you more information on the benefits of high deductible policies. This is as a way to contain your premiums and allow you to qualify for a Health Savings Account, which works like an IRA in terms of tax savings. Be sure to know whether your spouse or partner remains covered by your new policy. (Dropping spousal coverage is one way employers can cut the costs of ACA compliance, but according to the International Foundation of Employee Benefit Plans, most large companies have not intended to resort to this measure.)
Few employers discontinued their employees’ coverage. Again, large employers can be penalized if they do not make coverage available to their full-time employees. And although the Obama administration recently announced that those penalties would not go into effect for large firms until 2015, it is unlikely that this delay will induce large firms to disband their employee medical coverage. Most large employers are convinced that offering good medical coverage is a competitive necessity to attract and retain good workers. As the economy percolates, this becomes even more imperative.
Small Business Owners and Employees, and the Self-Employed
One benefit of the Affordable Care Act (ACA) is that access to health insurance will have less bearing on consumers’ employment decisions. In fact, ACA could cause a wave of would-be entrepreneurs, now that they can leave a large group plan and still get health insurance on their own.
Let’s look at the impact of the ACA on small business owners and their employees, as well as its impact on the self-employed.
- Small Business Owners: Unlike large companies, businesses employing 50 or fewer full-time employees are NOT mandated by ACA to provide health care coverage to their employees. Further, those currently offering a health care plan that’s not entirely compliant with the Affordable Care Act may keep that offering in place (i.e. “grandfather” the existing plan).
For small businesses that haven’t previously offered coverage to employees, ACA provides incentives to do so. In 2014, “small business health option plans” (SHOPs), went online in each state. Similar to the state-run health insurance exchanges for individuals, SHOPs will allow small businesses to shop among several health care providers, and to garner cost savings and administrative efficiencies afforded by a competitive marketplace. For even smaller businesses with 25 or fewer employees and average annual wages of $50,000 or less, tax credits of up to 50 percent are available for employer-paid premiums, as long as the employer contributes at least 50 percent of the coverage cost.
Employees of Small Businesses: If your employer has 50 or fewer employees and does not provide health care insurance, consider yourself “self-employed” with regard to ACA. You should be looking to your state-provided health care marketplace for individual coverage.
Instead, your employer may have responded to ACA’s small business incentives, and decided to adopt a plan through the SHOP marketplace. While the original intent of ACA was to give small business employees a choice of options through the SHOP marketplace, an amendment has delayed the “employee choice” feature, allowing small businesses to offer only one insurance option to its employees until fall 2015. Furthermore, the employer can choose the level of coverage for this plan, which ranges from 60 percent of medical costs covered by the insurance to 90 percent.
If the employer’s plan does not meet your needs, you can go to your state’s exchange the next time enrollment is opened, but be aware that you will be ineligible for the premium credits otherwise available to lower income individuals.
Self-employed (with no employees): You may already have a health care policy through a professional association – or you may be one of the millions of Americans whose only defense against catastrophic medical costs is keeping their seatbelts fastened and fingers crossed. In either case, by now you need to be familiar with your state health insurance exchange and the options and providers available to you.
Now let’s look at Americans who were uninsured before 2014 – those that were not covered by an employer, and were also either unable or unwilling to purchase an individual health insurance policy.
Because of the mandate power of the ACA, the uninsured were required to have obtained health insurance by March 31, or else they will be subject to a penalty of $95 per adult and $47.50 per child, or 1 percent of family income, whichever is greater. In 2015, the penalty rises to $325 per adult (half as much for each child) or 2 percent of income. In 2016 and beyond, the penalties rise even further.
Certain groups are excluded from paying the penalty, such as prisoners, members of Indian tribes, very low-income individuals, and undocumented immigrants. That leaves approximately 12 million people, according to the Congressional Budget Office, who will need to have decided between paying the penalty or buying coverage.
Many, but by no means all, of these individuals are American adults younger than 30, who mostly enjoy the robust good health that comes with youth. Medical costs, let alone health insurance, are often pretty low on their list of financial concerns. They feel they have enough to deal with in finding a job or paying down student loan debt. Facing the choice to get insurance or pay a penalty, they may resort to simple math, and conclude that $95 is a lot more affordable than the $3,000 or $4,000 that is currently being estimated as the cost of the lowest level of insurance coverage available on the state exchanges.
But here is where a good financial planner should have interrupted this false logic, and presented a more comprehensive picture of what going without health care insurance really costs.
Beyond the penalty tax for remaining uninsured, there is:
- The risk of incurring huge medical costs due to an accident. Being young and healthy does not vaccinate you from the kind of risk that can leave you and your family destitute.
- Limited access to quality medical care when you do need it. While the Affordable Care Act will not close down access to emergency rooms when an uninsured individual needs immediate care, getting treatment from other physicians for chronic conditions is going to be a lot more difficult. Some providers, when they learn you are uninsured, may simply decline you as a patient.
- The increased likelihood that you will neglect the routine, preventative procedures that can keep you healthy. It stands to reason: If you are unwilling to pay for insurance, you’ll probably be averse to the high cost of an annual check-up or routine procedures.
The Affordable Care Act has made coverage more expensive for young, healthy Americans. But the math needs to factor in not just the hard, out-of-pocket costs today, but also the potential costs of being without insurance tomorrow.
Regardless of your employment or coverage status, there’s no better time than now for taking a few minutes to understand the impact of the Affordable Care Act if you haven’t already. Start by visiting healthcare.gov today.