What Is Obamacare? 8 Facts You Should Know
Money Girl covers 8 facts about Obamacare and how it will affect your health and your taxes.
If you follow the news, you’ve heard the term “Obamacare” a lot lately. No matter if you’re uninsured right now or have health coverage through an employer, everyone should get to know what health care reform really means.
In this episode I’ll cover 8 facts about Obamacare so you understand how it will affect your health and your taxes.
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What Is Obamacare?
Obamacare is a nickname given to a bill that passed in 2010 and was signed into law by President Barack Obama (hence the nickname). It’s actually called the Patient Protection and Affordable Care Act and it’s a whopping 2,572 pages long. What many people don’t realize is that the law covers a lot more than just health care issues.
Here are 8 facts about what’s really in the law and how it will affect your health and personal finances:
Fact #1: You’re Legally Required to Have Health Insurance
One of the most controversial parts of the Affordable Care Act is called the individual mandate. Starting in 2014, the federal government will require most Americans to buy health insurance.
You must provide documentation, such as a receipt or Form W-2, with your tax return to prove that you’re enrolled in a health plan. Otherwise you’ll have to pay a tax penalty of $95 or 1% of your gross income, up to $285, whichever is higher.
But this penalty gets steeper in 2015 and 2016, going as high as $695 or 2.5% of gross income, to a maximum of $2,085.
Fact #2: You Must Have a Qualified Health Plan
When the government says you must have health insurance starting January 1, 2014, they don’t mean just any health insurance. In order to avoid the tax penalty, you must have a certain type, which is called a “qualified plan.”
No matter if you get insurance through work or on your own, a qualified plan must cover these 10 essential benefits:
- Hospitalization
- Outpatient care
- Emergency services
- Laboratory services
- Preventive care
- Prescription drugs
- Maternity and newborn care
- Pediatric care
- Rehabilitative services
- Mental health and substance abuse treatment
Fact #3: Unhealthy Consumers Can Get Insurance
Starting in 2014, it will be unlawful for an insurance company to deny coverage or raise health insurance rates based on your health. If you have any pre-existing conditions, such as diabetes, cancer, or hypertension, you’ll be able to get health insurance.
Fact #4: Young Adults Have More Options
Parts of the Affordable Care Act have been slowly rolling out since it was passed. One of the first was the law that children and young adults up to age 26 now can be insured on their parents’ health plan. This is an option unless you are offered an affordable health plan through an employer.
If your health treatment costs an insurer millions of dollars each year, they’re required to pay it and never hike your rate.
Fact #5: There Are No Caps on Benefits
Insurance companies can no longer put a dollar limit or cap on what they’ll pay out for medical costs over your lifetime. The new law also phases out annual caps on payouts in 2014 and 2015. If your health treatment costs an insurer millions of dollars each year, they’re required to pay it and never hike your rate.
Fact #6: States Must Have a Health Exchange
The Affordable Care Act requires every state to establish a health insurance exchange or marketplace where consumers can shop for qualified plans. They must include a website, a toll free phone number, and a local office, in case you need in-person assistance.
Different insurance companies can offer plans with the same 10 essential benefits that I previously mentioned, in Bronze, Silver, Gold, and Platinum versions. A Platinum plan will cost the most, but cover 90% of your medical bills. Bronze, on the other hand, will cost less but only cover 60%.
Fact #7: Even the Middle Class Can Get Tax Subsidies
Anyone who doesn’t get health insurance through Medicare, Medicaid, or an employer can get insurance through an exchange. Depending on your income, family size, and residency status, you may qualify for financial assistance from the government in the form of an upfront tax subsidy. And even if your employer offers coverage—but it costs more than you can afford—you may still be eligible for financial help.
A tax subsidy is paid directly to the insurance company and reduces the health insurance premium you have to pay. It’s available to every American who earns up to 400% of the poverty level. That means a family of 4 can earn up to approximately $92,000 per year and still get government assistance.
Fact #8: There Are Loads of New Taxes
Making sure that every American has access to good, affordable health care is a worthy goal, but an expensive one. So it probably won’t surprise you to hear that taxes have gone up to pay for it.
There are about 20 new taxes or tax increases in the Affordable Care Act. One of the biggest is a hike in the Medicare tax deducted from your gross paycheck. This will affect high earners, who are defined as individuals making more than $200,000 and families making more than $250,000 per year.
Other taxes include a new investment income tax, fewer allowable medical deductions, reduced tax-free contributions to medical savings accounts, taxes on tanning salons, medical devices, pharmaceutical companies, and health insurance companies.
For more information about health care reform, visit healthcare.gov.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
