No matter your opinion on the recent Supreme Court ruling on the Affordable Care Act, changes mandated by that act might affect your finances in the future. Unfortunately, between the talking heads and angry individuals on both sides of the health care debate, it can be rather difficult to figure out exactly how your finances will be affected. Here is a basic breakdown of what the ACA will do for the average American:
Tax on the Uninsured
This is by far the most controversial aspect of the Supreme Court’s recent ruling. According to the court’s decision, Americans will be required to either have or buy health insurance as of 2014. Otherwise, you will pay a tax penalty of:
- 2014 – No more than $285 per family, or $95 for a single adult, or 1% of income, whichever is greater.
- 2015 – No more than $975 per family, or $325 for a single adult, or 2% of income, whichever is greater.
- 2016 – No more than $2,085 per family, or $625 for a single adult, or 2.5% of income, whichever is greater.
There are several exemptions for this penalty, however. There are eight categories of exemptions: “These include individuals who will be exempt for religious reasons — for example, Christian Scientists; incarcerated individuals; undocumented aliens; individuals who can’t afford coverage (i.e., their required contribution would exceed 8 percent of their household income); individuals who will be without coverage for less than three months; other individuals deemed to be in a ‘hardship situation,’ as will be defined eventually by the Secretary of Health and Human Services; individuals with incomes below the federal tax-filing threshold; and members of Indian tribes.”
No Exclusion for Pre-Existing Conditions
As of 2014, it will be illegal for insurance companies to deny or exclude coverage for those individuals who have pre-existing conditions. Children under the age of 19 who currently suffer from a pre-existing condition do not have to wait to apply: as of right now, health insurance plans cannot deny benefits to minors with pre-existing conditions. In addition, there are now national high-risk pools that individuals with pre-existing conditions can join in order to get health insurance sooner than 2014.
This provision of the ACA will make it much less likely that a chronic condition could lead to huge medical bills.
Are You Going to Be Fully Audited if You Don’t Pay Up?
The next big fear is that failure to pay will result in a tax audit. You probably won’t be audited if you don’t pay the penalty. Instead, the IRS will send you a letter letting you know that Uncle Sam wants your money. The law makes it clear that failure to pay the penalty won’t result in criminal charges. Additionally, the government can’t put levies or liens on your property to collect this penalty. Instead, you are likely to be subject to a withholding of future tax refunds. So, if you’re due a refund, and you haven’t paid your penalty for not having health insurance, you might not receive the money, since it will be used to pay what you owe.
Effect on the American Economy
It is unlikely that any economist can puzzle out the exact effect this ruling will have on the American economy. However, we do know that the federal government expects to spend over $1 trillion over the next ten years in order to subsidize health care coverage and expand Medicaid eligibility.
It is important to note that some experts expect the new law to reduce the deficit. According to CNN.com, “the nonpartisan Congressional Budget Office estimated that the law could reduce deficits modestly in the first 10 years and then much more significantly in the second decade.”
Part of the reason why it is difficult to determine the overall economic fallout of this decision is because we cannot easily calculate the costs of continuing to have so many Americans remain uninsured.
The Bottom Line
The intention of this law is to make health care affordable for all Americans. While there may be some growing pains as we adjust to the individual mandate and other aspects of the ACA, overall this ruling should help the bottom line of families and individuals.