Health Care Reform and Your Money: Four Things to Watch

One of the biggest hurdles to the passage of the sweeping health care overhaul earlier this year was to determine how it will be funded. The Patient Protection and Affordable Care Act will tap a variety of funding sources, and will shift some costs from one part of the system to another as modified by the Health Care and Education Affordability Reconciliation Act of 2010. As a result, the average health consumer may see shifts in their premiums, taxes, deductibles and co-pays.

You may receive a tax subsidy.

The new law establishes state- or region-based insurance exchanges where individuals and small businesses can shop for insurance plans. These regulated plans will be subject to standardization rules and may offer better benefits than some current plans, but that may also drive their price tag higher. Enter the tax subsidy program, which will offset some of the increased cost of plans available in the exchanges, beginning in 2014. Families earning up to four times the poverty rate ($88,200 for a family of four in 2009) will be eligible for a tax subsidy that ensures they pay no more than 9.5 percent of their income.

You’ll pay if you don’t play.

Beginning in 2014, the federal government will fine those who don’t have health insurance. Why? Those most likely to risk living without health insurance are the young and the healthy. However, when insurers are forced to cover anyone who applies, and the healthy people leave the system, the insured pool is likely to need more health services, and be more expensive on average.

The insurance mandate, for which there are only a handful of exemptions, will levy fines that go up for the first three years. In 2014, you’ll pay the greater of $95 or 1 percent of taxable income; in 2015 the numbers are $325 and 2 percent, and in 2016 they are $695 and 2.5 percent.

You might pay more if you earn more.

Couples who earn more than $250,000 a year, and singles earning more than $200,000 through wages or self-employment, will be subject to an additional tax starting in 2013. If you fall into one of these categories, you will pay an additional 0.9 percent tax for Medicare Part A (hospital insurance) on earned income over the threshold amount. Additionally, for couples with modified adjusted gross income (AGI) over $250,000, ($200,000 for singles) there is a new Medicare surtax of 3.8 percent on the lesser of net investment income or the excess of AGI over the threshold amount. This tax also begins in 2013.

Your premiums might rise.

Insurance policy pricing today is based on risk. So, sicker people pay higher premiums and healthier people pay less. The reform effort seeks to even out those premiums, which will help those at a higher risk, but it will hurt those on the lower end of the risk scale. Subsidies, and the ability to remain on a parent’s plan longer, will help offset the increased cost, but a spike in premiums for the young and healthy is one of the expected changes from the bill. The new law does provide an option for younger Americans to purchase a plan that only covers catastrophic health costs – a plan whose premium is likely to cost less in exchange for a high deductible.

Other implications.

Other ways that individuals may be affected is in the way plans may evolve to avoid being in the so-called Cadillac Plan tax. Plans may ask enrollees to share more of the costs for premiums, co-pays and deductibles. The use of Health Savings Accounts (HSAs) where individuals save money for out-of-pocket health costs on a tax-advantaged basis may increase.

AJ Jugan and Brian Stumpf are financial advisors and Certified Financial Planner™ professionals. Andrew (AJ) can be reached by calling 412-635-5813 or emailing andrew.m.jugan@ampf.com. Brian can be reached by calling 724-799-2782 or emailing brian.d.stumpf@ampf.com.