Health care reform overview: the individual mandate
American Academy of Sleep Medicine
Wednesday, July 25, 2012
With the recent Supreme Court decision to uphold the Affordable Care Act, there is much speculation on how this legislation will change clinical practice. While the unknowns are greater than what we currently understand about the ACA, the AASM has been analyzing what is in store for sleep medicine. Over the next several weeks, the AASM website will provide a synopsis of certain provisions in the bill. This week will focus on the individual mandate.
Beginning January 1, 2014, all U.S. residents are required that they and any dependent are covered under minimum essential coverage. Minimum essential coverage includes:
- Government sponsored programs including: Medicare, Medicaid, Children’s Health Insurance Program coverage (CHIP), TRICARE, coverage through Veterans Affairs, and Health Care for Peace Corps volunteers;
- Employer-sponsored plans including governmental plans, grandfathered plans and other plans offered in the small or large group market;
- Individual market plans, including grandfathered plans; or
- Other coverage designated as minimum essential coverage by Health and Human Services (HHS) and/or the Department of the Treasury.
Individuals who do not have minimum essential coverage will pay a tax that will be a flat dollar amount or a percentage of the individual’s taxable income.
- The flat dollar amount per individual is $95 in 2014; $325 in 2015 and $695 in 2016. After 2016, the flat dollar amount is indexed to inflation. The flat dollar penalty is capped at 300% of the flat dollar amount. For example:
- A family of three (two parents and one child under 18) would have a flat dollar penalty of $1,737 in 2016;
- A family of four (two parents and two children over 18) would have a flat dollar penalty of $2,085 in 2016 because the 300 % cap would apply.
- The percentage of taxable income is an amount equal to a percentage of a household’s income that is in excess of the tax filing threshold (phased in at 1% in 2014; 2% in 2015; 2.5% in 2016). For example:
- If an individual has a household income of $50,000, the percentage would be 1% of the difference between $50,000 and the tax threshold (which is $9,350 for an individual in 2010). Assuming the tax threshold is $10,000 in 2014, this individual would be subject to a percentage penalty of $400. Because this percentage penalty is greater than the flat dollar penalty for 2014 (which is $95), the individual would pay the percentage penalty.
Premium Credits and Cost-Sharing Subsidies:
Beginning in 2014, individuals who are enrolled in a health benefits plan purchased through a State Exchange may be eligible for a premium credit or cost-sharing subsidy.
- The Premium Credit is available to people with incomes up to 400% of the Federal Poverty Level (FPL), excluding illegal immigrants and individuals eligible for employer sponsored coverage, Medicare, Medicaid, CHIP, TRICARE, or coverage through Veterans Affairs.
- Individuals who are eligible for employer sponsored coverage may apply for a premium credit when their employer coverage is below 60% actuarial value or if premiums exceed 9.5% of their income.
- The credit is equal to the lesser of:
- the total monthly premium for the taxpayer and any covered dependents; or
- the amount by which the adjusted monthly premium for the second lowest
- The premium credit is determined in advance based upon the taxpayers’ last tax return.
- Cost-sharing subsidies reduce the out of pocket limits currently set at $5,950 for individuals and $11,900 for families (based on 2010 numbers).
- The amount of the cost-sharing subsidy is based upon a sliding scale depending on FPL (ranging from a subsidy of 2/3 of the out of pocket limit to 1/3 of the out of pocket limit).
- HHS notifies the insurer if an enrollee is eligible for the cost-sharing subsidy. The insurer is required to notify HHS if there are any cost-sharing reductions and HHS makes periodic payments to the insurer.
Individuals not required to maintain minimum essential coverage include:
- Individuals with a religious conscience exemption (applies only to certain faiths);
- Incarcerated individuals;
- Undocumented aliens;
- Individuals who cannot afford coverage (i.e. required contribution exceeds 8% of household income);
- Individuals with a coverage gap of less than 3 months;
- Individuals in a hardship situation (as defined by the Secretary of Dept. of Health & Human Services (HHS));
- Individuals with income below the tax filing threshold; and Members of Indian tribes.