Health Care Reform Update, Part 2: The Mandate
Eileen St.Pierre, The Everyday Financial Planner
On June 28, 2012 the Supreme Court in a 5-4 ruling upheld the majority of the Patient Protection and Affordable Care Act’s provisions. The individual mandate was upheld under the government’s general power to tax. This column is the second in a 4-part series providing an update on the health care reform law. It focuses on the individual mandate and other important changes coming in the future.
- Most Americans must have health insurance coverage by January 1, 2014 or pay a penalty. The initial penalty for an individual starts at $95 or up to 1% of income, whichever is greater. The penalty will rise to $325 or 2% of income by 2015; $695 or 2.5% of income by 2016. There is an exemption for those with low incomes and for those who spend more than 8% of their income on mandated health insurance. No criminal charges or liens can be imposed on those who do not pay the fine.
- Native Americans, members of certain religious faiths, undocumented immigrants, and prisoners are not subject to the mandate.
- Employers began reporting the value of health insurance on 2012 W-2 forms in Box 12 under Code DD. This amount is not taxable. The IRS will use this value in 2014 and beyond to verify insurance coverage and determine any tax penalties under the Affordable Care Act. For example, some employees are provided high-cost insurance plans, known as Cadillac plans, as part of their benefits. Starting in 2018, there will be a 40% excise tax on these plans; this tax will be paid by the insurance provider.
- Subsidies and tax credits will be available for low-income workers to pay for coverage.
- Employers with more than 50 employees who do not offer health insurance coverage will pay a penalty of $2,000 per employee if any employee receives federal subsidies to purchase health insurance. Employees working fewer than 30 hours a week or fewer than 90 days are not covered by the law. There has been some controversy over companies moving employees to part-time status to avoid offering health care coverage.
Other 2014 Changes
- No one can be denied coverage or be charged higher rates because of pre-existing conditions. Women cannot be charged more.
- Insurance companies cannot drop or limit your coverage if you participate in a clinical trial that treats cancer or other life-threatening diseases.
- Annual limits on benefits are banned completely.
The Medicare Part D Donut Hole
The donut hole (or coverage gap) will be completely eliminated by 2020. Here is a schedule of what you’ll pay for drugs while you are in the donut hole:
- 2013: 47.5% for brand-names and 79% for generics
- 2014: 47.5% for brand-names and 72% for generics
- 2015: 45% for brand-names and 65% for generics
- 2016: 45% for brand-names and 58% for generics
- 2017: 40% for brand-names and 51% for generics
- 2018: 35% for brand-names and 44% for generics
- 2019: 30% for brand-names and 37% for generics
- 2020: 25% for brand-names and 25% for generics
Medicare Part D recipients will still be responsible for 25% of their drug costs until Medicare catastrophic coverage starts (then just pay 5%).