Helping you see the forest through the trees: Affordable Healthcare Act

affordablehealthcareThe individual mandate goes into effect on January 1, 2014.  What does this mean for you and your family?  Each individual must obtain and maintain insurance for themselves and any dependents or face paying a monthly penalty.

The monthly penalty is calculated either as

…the sum of the monthly penalty amounts for each individual in your family for months in the tax year during which one or more of the individuals did not have coverage.  Your family as defined by this law is yourself and spouse (if filing a joint return) and any other dependent that you claim on your tax return.  The penalty is either a flat dollar amount which is the lesser of the sum of applicable dollar amounts for all individuals in the taxpayers family without coverage or 300% of the applicable dollar amount within the tax year, or the excess income amount which is the excess of the taxpayer’s household income over the taxpayer’s filing threshold and income percentages.  The income percentage for 2014 is 1%, 2015 is 2% and after 2015 is 2.5%.

Or

…the sum of the monthly national average bronze plan premiums for the shared family plan.  It is 1/12th of the annual national average premium of a bronze level plan.  Currently, as of October 2013, bronze plans on the healthcare.org (exchange site) for 2014 plans, range from $100 to $600, based on age and other factors.

Example 1:  In 2006, Harriet and Jeremiah are married and file a joint return.  They have 3 children ages: 21, 15 and 10.  No member of the family has minimum coverage for any month in 2016.  Their household income is $250,000.  Their applicable filing threshold is $24,000.  The annual national average bronze plan (hypothetical) premium for a family of 5 is $15,000.  For each month in 2016 the applicable dollar amount is $2,780 (($695 x 3 adults) + ($695/2) x2 children)).  The flat dollar amount is $2,085 (the lesser of $2,780 and $2,085 ($695 x 3)).  The excess income amount is $5,650 (($250,000-$24,000) x 0.025).  Therefore, the monthly penalty amount is $470.83 (the greater of $173.75 ($2,085/12) or 470.83 ($5650/12)).  The sum of the monthly national average bronze plan premiums is $15,000 (hypothetical).  Therefore, the shared payment penalty for the year imposed on this family is $5,650(the lesser of $5,650 or $15,000).

There are 4 different levels of coverage offered on the exchange websites, bronze, silver, gold, and platinum.  The bronze level offers 60% coverage; silver is 70%; gold is 80% and platinum is 90%.  These percentages are actuarial meaning they will differ with each individual or family.  Within the healthcare exchange, there are customizable health plans under each level to meet your family’s needs.

Low income individuals will be afforded a premium tax credit after 2013 that will assist individuals and families to subsidize the purchase of certain plans through the exchange.  The credit will be available on a sliding scale basis for individuals and families with household income between 100% and 400% of the poverty line.  It will be allowed as a credit against income tax and the alternative minimum tax.  The credit will also be refundable.  The amount of the credit will be based on the percentage of the taxpayer’s income that the cost of premiums represents.  The amount will be equal to the difference between the premium for a benchmark plan and the taxpayer’s expected contribution (the applicable percentage of the taxpayer’s household income.)  The credit will be determined on a monthly basis and will be limited to the amount of actual premiums for the tax year.  This means that no one will receive a credit that is larger than the amount that they have paid for the plan.  The credit will be reported on Form 8885 and will not be able to be filed on Form 1040A or 1040EZ.

For further information regarding the Affordable Care Act, how it affects you and your family, please feel free to contact us.

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