Now that health care reform is a done deal in the U.S., it’s time to start looking at how it might affect our American readers in terms of their finances. It is well known that Americans pay more for health care than any other developed country, and it is well known that health care costs in the U.S. continue to skyrocket. But, while these wider issues are discussed, here are some of the basics of what health care reform means to you, on a more personal level.
Requirement to Buy Health Insurance
The biggest change is that most Americans will be required to purchase health insurance. This provision doesn’t kick in until 2014, so you have some time to consider your health insurance options, including a high deductible plan paired with a Health Savings Account. You can be exempted from the requirement to purchase health insurance if you can show financial hardship, that the health insurance goes against religious beliefs, or if you are American Indian. There will be financial penalties starting in 2014 for those who don’t purchase insurance. The penalty starts at 1% of income and rises to 2.5% of income by 2016.
Starting in 2014, Medicaid will be expanded so that more people qualify, including low-income adults without children. For those who still don’t qualify for Medicaid, and can’t afford health insurance, there will be state-based insurance exchanges. If you can’t afford health insurance, you could be eligible for sliding-scale subsidies to help you pay your premiums.
Getting Health Insurance Coverage
Starting in 2014, insurers can’t reject you for coverage based on your health status. For now, a high-risk insurance pool will be created on a temporary basis to make sure that those who have been rejected and uninsured for at least six months can get access to health coverage. Also starting this year, insurance companies have to cover pre-existing conditions in children. This could make it more affordable for some parents to get help for chronic diseases and other problems affecting their children.
Policies sold on insurance exchanges will have to cover doctor visits, prescriptions, preventative tests, maternity care and hospitalizations, possibly making these items more affordable in some cases where they have not been available.
Starting this year, lifetime limits on coverage are to banned, and in 2014, annual limits on coverage will be disallowed. Children will be able to remain on their parents’ insurance policy until the 27th birthday, as long as there is no insurance offered through the child’s work. Those in their 20s will have the option to buy a “catastrophic” plan with lower premiums and coverage that kicks in after $6,000 in out of pocket expenses.
If you have Medicare, you are probably aware of the “doughnut hole”. This year seniors are getting $250 to help cover prescriptions in this area. Subsidies and discounts will eliminate the gap over the next 10 years, so that by 2020 those seniors paying 100% of their prescription costs will only pay 25% of them eventually. Preventative services through Medicare will all be free starting this year, providing a cost-effective way to receive screening for different cancers and other preventative care.
For those who have been enjoying some of the more lavish benefits of Medicare, there will be cuts. Starting in 2011, benefit cuts for things like hear aids, eyeglasses and gym memberships will be cut, phasing the cuts over the course of seven years.
As you might imagine, health care reform is going to affect taxes, and even deductions. The Congressional Budget Office (CBO) says that this bill will actually pay for itself — and reduce the deficit in 10 years. That doesn’t just happen magically. Here are some of the changes to taxes as a result of health care reform:
- Couples earning more than $250,000 a year, and individuals earning more than $200,000 a year, will see an increase from 1.45% Medicare tax to 2.35% starting in 2013.
- Those with the higher income listed above would also see a 2.8% tax on unearned income (interest and dividends).
- Starting in 2018, a 40% excise tax would be imposed on the portion of employer-sponsored “Cadillac plans” that exceeds $10,200 a year for individuals and $27,500 for families.
- The threshold for deducting medical expenses (unreimbursed) would be raised to 10% of income from 7.5%, so many will lose the current tax deductions they tax advantage of.
- Starting this year, those who make use of indoor tanning facilities will pay a 10% tax.
- Starting in 2013, your tax-advantaged flexible spending account contributions will be limited to $2,500 for medical expenses.
It is hard to tell what this will do to your insurance premiums. Whether or not this bill will actually keep a lid on costs is now being debated. There are some arguments that, for individual plans, unhealthy people will see lower premiums, while the healthy see the same or higher premiums. Those who end up receiving subsidies, reports the CBO, will see an 11% decrease in their premiums, and those with small group coverage are expected to see their premiums remain the same. Big employers are expected to see premiums stay flat or drop by as much as 3%.
It’s time to look over your health insurance, and make plans for what the future most likely holds for you, depending on your current situation, and the possibilities for health insurance going forward.