The Patient Protection and Affordable Care Act (PPACA or ACA) was passed to increase the number of Americans with health insurance. Since its passage, it’s estimated that 16.9 million more Americans now have health coverage.
Below are some of the most commonly asked questions regarding ACA and, specifically, how it affects self-employed individuals.
1. What Is the ACA?
ACA passed in 2010 and was meant to make it easier and more cost-effective for Americans to obtain health insurance than to live without it. Additionally, the ACA included the following:
- Established minimum essential coverage that requires all Americans to have a certain level of health insurance
- Made it illegal for anyone to be denied insurance due to a pre-existing condition
- Provided additional funds for Medicaid that were distributed to states to expand their current Medicaid programs, which already offer low-cost health insurance and extend benefits to residents younger than 65
- Set up individual tax penalties to be assessed annually against individuals who do not have health care.
The act also included new requirements for small businesses and what they are responsible for in regard to providing healthcare for their employees.
2. What Is Minimum Essential Coverage?
Basically, all U.S. citizens are required to have health insurance that meets a certain criteria. In turn, all health insurance providers are required to offer plans that fall within the following parameters:
- It’s affordable: Plans must cover at least 60% (on average) of out-of-pocket costs on required services. There are also limits on annual deductibles and out-of-pocket maximums.
- Guaranteed availability: The only reason coverage can be denied is the inability to pay; otherwise, there is no other reason an insurer should deny coverage.
- Guaranteed renewal: Members must be able to renew their policies regardless of their current health status.
- Fair insurance premiums: Limits have been placed on the amount that any member can be charged based on age, tobacco use, household size and location.
- 10 essential benefits: All health providers are required to cover at least ten essential benefits.
3. Do I Need to Have Health Insurance?
If you want to avoid paying an individual shared responsibility provision or penalty at the end of the year, yes. Since 2014, the annual penalties have been increasing. In 2016, if you do not have health insurance coverage, you will be required to pay either $695 per uninsured adult and $347.50 per uninsured child or 2.5% of your annual household income. You are responsible for paying whichever of the two amounts is higher.
4. Is There Any Way to Get an Exemption?
Yes, there are circumstances that allow you to obtain an exemption for coverage from the federal government. This will also absolve you from paying the individual mandate (penalty) at the end of the year.
To determine if you qualify for an exemption, visit this page on Healthcare.gov and answer the different questions. Some of the more common reasons for exemptions are:
- If the lowest priced healthcare plan available through the Marketplace would cost more than 8.05% of your household income, or you are not required to file a tax return because your income is below the tax threshold, you may qualify for a hardship exemption.
- If you were uninsured for no more than two consecutive months throughout the year, or your state didn’t expand its Medicaid program, but you would have qualified if it did, you may be eligible for a healthcare coverage-related exemption.
- If you are a member of a federally recognized tribe, or eligible for services through an Indian Health Services provider, or you are part of a healthcare sharing ministry, or you are a member of a religious sect with objections to insurance, you may be eligible for a group membership exemption.
- Also, if you were incarcerated in the previous year, or are an American citizen living abroad, or have experienced any of these other hardships, you may be eligible for an exemption.
5. Does the Policy Have to Be in My Name?
No. If you have a spouse or domestic partner who works for an employer that offers healthcare, and you are listed on his or her plan, you are considered covered. However, not all employers offer health insurance plans that allow for spousal or dependent coverage. If that is the case, you would be required to purchase your own health insurance plan.
6. Where Can I Find Health Insurance Plans and Offers?
A Google search for health insurance plans will generate a ton of results. You can also use Healthcare.gov to search for available plans. Healthcare.gov, or the Marketplace, is a one-stop shop for people looking to compare and contrast health insurance plans. The site offers four levels of coverage: bronze, silver, gold and platinum.
Note that if your state offers a health insurance program (such as Covered California), you will be redirected to their specific website to shop and sign up for a plan.
7. Is Insurance Through a 3rd-Party Site More Expensive Than Healthcare.gov?
Because of the regulations put in place by the ACA, the difference in cost between using a third-party site and Healthcare.gov should be minimal or non-existent.
However, if you qualify for tax savings due to your income, it’s best to use Healthcare.gov. It’s important to note that, in spite of your household income, if you do not select a silver plan when choosing insurance through Healthcare.gov, you will not receive the tax savings.
Even if you don’t qualify for savings, you can still use the Marketplace to find a plan; however, if you have the option, shopping around for a plan that works for you is typically a good idea.
8. If I Get Insurance as a Self-Employed Individual, Can It Cover My Spouse and Dependents?
Regardless of whom you choose as your health insurance provider (either via the Marketplace or another outlet), you can add coverage for your spouse and dependents. This will, of course, make your monthly premium and out-of-pocket expenses go up, but it’s better to have coverage than to go without it.
9. Is There a Special Plan for Kids?
Yes, the Children’s Health Insurance Program (CHIP) is part of Medicaid and offers low-cost healthcare coverage for kids whose families may not qualify for Medicaid. In this case, children are eligible until their 19th birthday. CHIP covers routine check-ups, immunizations, prescriptions, dental and vision, emergency services and more.
To apply for CHIP, you can visit InsureKidsNow.gov or call 1-877-543-7669. You can also apply for CHIP via the Health Insurance Marketplace. The Marketplace will send your information to your state’s agency, which will then contact you to discuss coverage options.
Costs for CHIP depend on how each state administers the program. Some states will charge a monthly premium or a co-pay for certain services, but you will never pay more than 5% of your family’s yearly income.
10. Can I Use Health Insurance Premiums as a Tax Deduction?
When filing your Form 1040, there is a spot on the first page, Line 29, that allows you to claim your self-employed health insurance costs for the year. The benefit of claiming your health insurance costs is that it lowers your gross adjusted income, which will in turn lower your total taxable income. Software like QuickBooks Self-Employed can help you easily track these deductions. There are two key factors to remember when determining your eligibility for deducting your health insurance costs as a self-employed person:
- You can only write-off your health insurance premiums for the months you and/or your spouse where ineligible for an employer-sponsored health insurance plan. For example, if you were employed for five months of the year and then left your job to start your own company, you would be able to claim your premiums for the remaining seven months.
- If your business does not earn any income, you cannot claim the health insurance deduction. You are not eligible to claim more deductions than your business earned in the same year.
For more tips on healthcare for the self-employed, see our article on making the transition from job-based coverage to self-employed coverage.