Effects of Health Care Reform on Individuals

The Patient Protection Act, as amended by the House Reconciliation Act, requires individuals not otherwise eligible for Medicaid or Medicare or other government sponsored coverage to maintain minimum essential coverage beginning after 2013. Individuals who fail to maintain minimum essential coverage would be liable for a penalty. The Patient Protection Act uses a formula to calculate the penalty taking into account the taxpayer’s household income and a flat dollar amount.

The Patient Protection Act, as amended by the House Reconciliation Act, imposes a nondeductible flat dollar-amount penalty of $95 per person without minimum essential coverage in 2014. The nondeductible penalty rises to $325 per person without minimum essential coverage in 2015 then to $695 per person without minimum essential coverage in 2016 and is indexed for inflation thereafter.

Comment

For individuals under the age of 18 or in college, the applicable flat dollar penalty would be one-half of the above amounts.

Comment

The flat dollar penalty on any taxpayer for any tax year with respect to all individuals for whom the taxpayer is liable (generally family members) cannot exceed an amount equal to 300 percent of the applicable dollar amount for the year.

Additionally, amendments made by the House Reconciliation Act raise the percentage of income that is the alternative to the flat dollar annual penalty from 0.5 percent to 1.0 percent in 2014, 1.0 to 2.0 percent in 2015, and 2.0 to 2.5 percent for 2016 and subsequent years.

Example

Abby, a 34-year old single, does not have minimum essential coverage in 2016 and is not exempt from having minimum essential coverage. Abby would be liable for a penalty the greater of: $695 or 2.5 percent of her modified adjusted gross income.

Impact

The Patient Protection Act, as amended by the House Reconciliation Act, completely exempts taxpayers below the threshold for fi ling an income tax return from the minimum essential coverage penalty. The House Reconciliation Act also lowered the penalty set in the Patient Protection Act effective for 2015 from $495 to $325 and for 2016 from $750 to $695.

Coverage Subsidiaries

The Patient Protection Act, as amended by the House Reconciliation Act, also provides premium assistance tax credits and reduced cost sharing to qualified individuals, on a sliding scale. The credit is designed to guarantee that qualified individuals would not spend more than a specific percentage of their income on medical insurance premiums. Generally, these are individuals who cannot afford minimum essential coverage based on the relationship of their income to the federal poverty level. The health care package allows for the advanced payment of premium assistance tax credits.

In coordination with this subsidy credit, which starts at 133 percent of the federal poverty level (FPL), the health-care package also expands Medicaid to cover those with income less than 133 percent of FPL.

The federal poverty level is determined based on family size. For example, the subsidy range for a family of four, starting above the 133 percent level, would extend from $29,327 to $88,000 under current levels. For single individuals, the subsidy range would extend from $14,000 to $43,000.

The Patient Protection Act, as amended by the House Reconciliation Act, includes a religious conscience exception, excludes undocumented individuals in the U.S. from coverage and provides special rules for qualifi ed members of Native American tribes, certain hardship cases, children under age 18 and incarcerated individuals. The health care package also provides for cost sharing for lower-income individuals enrolled in qualified health insurance plans and the advance payment of cost-sharing reductions for eligible individuals.

Comment

Individuals with Medicare, Medicaid, Veterans’ Affairs, or other government sponsored coverage would be treated as having minimum essential coverage.

The Patient Protection Act, as amended by the House Reconciliation Act, creates a reinsurance program for employer-sponsored early retiree coverage. Payments made under the reinsurance program for retirees would be excluded from gross income. Additionally, health services provided or purchased by the Indian Health Service would also be excluded from gross income.

Comment

The IRS would be responsible for determining eligibility for the premium assistance tax credit. Further, premium assistance tax credits would be disregarded for federal or federally-assisted programs.

The Patient Protection Act, as amended by the House Reconciliation Act, also creates a national voluntary insurance program for purchasing community living assistance services and support. Premiums will be paid through payroll deductions if an individual’s employer decides to participate in the program.

Source :  CCH, a Wolters Kluwer business