The Affordable Care Act, also known as Obamacare, is up and running. Although the early weeks were marked by delays and problems, many people have found better coverage at a lower price.
Let’s start with the assumption that health insurance is a good thing. Having insurance won’t remove all of the costs of health care, but it will provide coverage for basic preventative care as well as expensive surprises. It’s one thing to pay cash for your own flu shot, but another matter entirely to afford appendicitis or cancer without health insurance.
The Health Insurance Marketplace is the primary place to shop for Affordable Care Act plans. It includes information about the tax subsidy that is available to you to reduce the cost of the plan. The subsidy varies with income.
The Affordable Care Act sets out a minimum amount of coverage that all participating health plans must cover. The coverage is then priced to set an approximate level of payment that’s similar to co-payments, but not quite. The plans are ranked from Bronze (lowest premium), to Silver, Gold and Platinum (highest premium). Bronze plans have the highest out-of-pocket costs, but all plans cap out-of-pocket costs at $6,350 for individuals and $12,700 for families.
One of the complaints that many people have about the new Affordable Care Act plans is that they limit the number of low-cost, high-deductible catastrophic plans that were popular with younger, healthier people. However, the Bronze Plan is similar. It is designed to cover preventative care as well as hospitalization up to 60% of costs. The higher out-of-pocket functions like the higher deductible. Those who qualify for a subsidy usually find that the Bronze Plan offers better coverage at a lower cost than their old catastrophic plan did.
Applicants have to estimate their 2014 income to see whether they qualify for a subsidy. One challenge for people with unpredictable and low incomes is that if their income estimate is too low, the application will be sent to the Medicaid pool. That’s fine if for those truly eligible for Medicaid, but it will lead to delays in obtaining coverage if you are not. With the deadline looming, that’s a problem. You’ll need to start with your state’s Medicaid site to find out what the guidelines are where you live. Unless you’re going to be eligible, don’t estimate your income as zero! (If you are eligible, Medicaid is a way to receive basic health care coverage, and many states have changed their rules to allow more people to qualify.)
If you earn more than you expect this year, you may have to pay back some of the subsidy when you do your income taxes. This can cause cash flow concerns for the self-employed and unemployed people who would otherwise be excited about the Affordable Care Act. The trick is the same as avoiding the Medicaid pool: Overestimate your income. For example, if you are unemployed now but hope to have a job later in the year or will be working some consulting gigs, put in the salary you plan to ask for rather than your current earnings. You may lose the subsidy now, but you won’t have an ugly surprise on April 15, 2015. The Kaiser Family Foundation has a calculator that offers guidance on the amount of subsidy you are likely to receive for different income levels in different states. If your income estimate is too high, you’ll receive the subsidy at tax time.
Overestimating your income is perfectly legal, too; lying about your age or address is not.
Obamacare isn’t perfect, but neither was the health insurance system that it is replacing. The marketplace on the HealthCare.gov website is working, and the horror stories that so many politicians were hoping for have not materialized. The deadline to sign up is March 31, so if you’ve been waiting, it’s time to go and apply. (And yes, Living on the Cheap has a great guide to the sign-up process.)