Obamacare Health Insurance: How Does It Work?

Category: Financial News

Obamacare has been in the news a lot lately–mostly due to negative coverage of its poorly functioning website. But whether or not you love it or hate it, the policy is coming and there is a chance it’s going to affect your life, and so we’ve got the lowdown on some of the facets you’re most likely to interact with.

The background, in case you don’t follow the news: Obamacare is a piece of legislation, technically called the Patient Protection and Affordable Care Act. The nickname follows from President Obama signing it into law in 2010, and he peppered his campaign speeches last year with mentions of Obamacare: “And yes,” he would say, “I do care”. The law provides a number of new regulations, consumer subsidies, and taxes. How will these affect you? Let us count the ways.

1. You Must Buy Health Insurance

First of all, in case you don’t have health insurance, you’re going to have to change that–or pay the price. Specifically, you could be fined up to 2.5% of your income if you don’t have insurance by April 1st, 2014. And not just any insurance, but a “qualified plan” that covers a set of common but important treatments: hospitalization and emergency care, outpatient and preventive care, lab work, maternity and pediatric care, rehab, mental health, and prescription drugs. The plan doesn’t have to be great–you can stick with a high deductible and low reimbursement rate–but you do have to have one.

If you don’t, there will be penalties! The government will start out by taxing you $95. If you make more than $9,500 in the year but less than $28,500, they’ll tax you 1% of your income–and if you’re above that, you’ll pay $285. But that’s just in 2014–the max increases to $2,085 in 2015, and even low-income Americans will pay a penalty of $695 or 2.5%, whichever is more. So you can skip the insurance, but there’s good reason to buy a plan!

2. The Good News: The Government Will Help You Pay

Of course, the tax penalties look unfair on paper: lower-income individuals can’t afford health insurance, and now they get taxed on top of it? Outrageous! However, the government did plan for this: the Federal Government is funding a large expansion of Medicaid, to be administered by states. Not all states are following through on this, but because Washington is paying for 90% of the expansion, most states are or will sign up–meaning those Americans making low wages today, but not low enough for Medicaid, might find themselves moved into the program. This would let them have free insurance coverage, not a bad deal!

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But the middle classes will benefit as well. Even if you don’t qualify for Medicaid–and you’re too young for Medicare–if your employer doesn’t provide you a health insurance option than the government might provide you with subsidies, depending on your income. The subsidies apply to workers making possibly as high as 4 times the poverty line! Depending on your state, this means that a family of four could get subsidies even if they make $92,000 per year.

3. Twenty-Somethings Stand To Gain Too

While students have long been able to stay on their parents insurance, graduation meant you got kicked off! However, with the new law, you can stay on your parents insurance until you’re 26–no questions asked. Well, one question asked: if your employer provides you with insurance, then you get booted, but at that point your job has you covered so it’s less of an issue.

And once you’re 26, the subsidies kick in! Getting a low cost Bronze Plan–one that covers about 60% of your medical expenses–will only cost a couple thousand a year. After subsidies this number becomes a manageable monthly expense for many young adults, alongside Netflix and cell phone bills.

4. Lifetime Limits are Long Gone

Before Obamacare, one secret tucked-away provision of health law was the lifetime limit: insurance plans would cover your costs, but only up to say $1,000,000. Now this sounds like a big number, but if you add up bills for a couple rounds of cancer treatments then you’re going to find that the number is not as large as it sounds. Well most people don’t get cancer in a given year, once they did they were slammed with this limit and, quite often, forced into bankruptcy. This terrible experience–getting cancer treatments followed by bankruptcy–was one of the central problems the law is supposed to address. And it does! Insurers can no longer set lifetime limits, meaning this concern is no longer one you have to have. Well many people didn’t know about the original law, they can surely rest more soundly knowing the current one.

Another fix is that insurers can no longer kick you off or deny you coverage due to preexisting conditions. This means that if you or your child has cancer, or diabetes, you’ll be able to get an insurance plan–no matter what.

5. But It’s Not All Good News

Taxes are going up. There’s a good chance you won’t notice this–or that, at least, your subsidies will outweigh it–but Medicare taxes are increasing for high-earners making over $200,000 per year, and investment taxes are going up as well. Additionally, tax loopholes allowing deductions for medical spending are on their way out, as well as business taxes on drug companies and famously, tanning salons.

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But on the other hand, the host of subsidies and guarantees means that many Americans will benefit. No matter how you feel about the law, the benefits that many people will see will certainly help out, even if the taxes pinch too.

By Jenny Chang

Senior writer at FinancesOnline who writes about a wide range of SaaS and B2B products, including trends and issues on e-commerce, accounting and customer service software. She’s also covered a wide range of topics in business, science, and technology for websites in the U.S., Australia and Singapore, keeping tabs on edge tech like 3D printed health monitoring tattoos and SpaceX’s exploration plans.

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