Back in 2010 the Patient Protection and Affordable Care Act (PPACA — also called the ACA or referred to as Obamacare) was passed by Congress and signed into law by the President. Provisions of the law have been implemented since that time, with changes coming gradually. However, the biggest provision of the law, a requirement to purchase health insurance, is right around the corner.
Starting in 2014, the requirement to purchase health insurance will be in effect. If you don’t purchase health insurance, you will be charged a penalty of the greater of $95 or 1% of your income. (Over time, the penalty will increase.)
For the first year, many Americans might decide to avoid purchasing health insurance and just pay the penalty. Indeed, according to CNBC and a report released by InsuranceQuotes.com, almost two-thirds of those who are uninsured don’t know if they will buy health insurance.
So, why do uninsured Americans think that health insurance is unaffordable? Many of them may not realize that there are tax credits available to them in order to offset the cost of health insurance. Additionally, those who are aware that there are subsidies for low-income households may not know if they qualify.
Tax Credits for Obamacare
Since everyone will be required to have health care coverage, there are some subsidies set up to help those who might not be able to afford health insurance.
First of all, it will be possible to purchase health insurance on state-run exchanges if you don’t have access to insurance through your employer (states that don’t want to set up an exchange default to a federally-run exchange).
Those who are eligible for Medicaid will still have their regular setup. The tax credits are designed for those who don’t qualify for Medicaid and who need help paying their premiums. The amount of your tax credit depends on your income. Those who make up to 400% more than the federal poverty level for family size will be eligible for tax credits. The Kaiser Family Foundation has estimated that 67% of the population will either have access to subsidies or Medicaid. This means that only about one-third of the population will have to pay “full price” for health insurance coverage.
Consumers can get their tax credits for Obamacare when they sign up for insurance. If you are eligible for the tax credit, you can apply when you sign up for insurance. The government will use a formula to determine how much, based on your income, you will receive as a subsidy. Your subsidy amount will be paid directly to the insurance company, and you will have to cover the rest of the cost as a monthly premium.
So, if you owe $500 a month for your insurance, but you have a tax credit that will cover $300 a month, you only need to come up with the remaining $200. If you are eligible for the tax credit, it will lower your portion of the monthly premium, making it more affordable for you.
You can also choose to pay your entire health insurance premium out of pocket and claim the tax credit at tax time. If you do this, your tax credit will be refundable. However, you need to make sure that you have the ability to pay your premium upfront.
Obamacare will probably be affordable for most people, once the tax credits are factored in. And, if you don’t think you can buy health insurance, you can apply for an exemption — or pay the penalty.