Obamacare and Taxes

Hey Paul: We are the classic American family with a nice home, two kids and a dog. We both work with a combined income of $50,000. I am self-employed and my husband works for a small business so we don’t have employer provided insurance. Are we eligible for Obamacare?

Sounds like a really nice life you’ve carved out for your family. All you need now is health insurance and maybe a boat. Yes, it appears that you meet the criteria to received subsidized health insurance through the Affordable Care Act (aka Obamacare). The main criteria are that you have a “modest” income and are not eligible for employer or government insurance such as Medicaid or Medicare. For a family of four you could make up to $95,400 in 2015 and be eligible for Obamacare. In KY Medicaid has been expanded up to 138% of the Poverty Level that for a family of four would be about $32,913.

Medicaid coverage is great as it covers essentially 100% of medical expenses – no premiums, no deductibles, no co-pays (ok, literally $1 in some cases). Well you don’t get quite that good of deal. Your annual premium is capped at 6.63% of your annual income — $3314 per year or $276 per month. The government will pay the premium difference to afford the second-lowest silver plan available in this area. This plan would cost about $7000 so the U.S. government is picking up over half the tab. If your finances are good and health is bad you could opt for a Gold Plan with lower expected out-of-pocket costs. If your finances are bad and health is good you could opt for a Bronze plan and pay only $187 per month or $2187 annually in premiums. For readers with different situations you can quickly get your numbers at http://kff.org/interactive/subsidy-calculator/

The ACA enrollment period runs through mid-November through mid-February so currently you cannot join. If you have had a significant life event – change in employment, family size or marital status then you can join outside the regular sign-up months. The penalty for not having any type of insurance including forgoing Obamacare jumps to $2085 in 2016 – just slightly less then what you pay for a Bronze plan.

Hey Paul: Our family signed up for Obamacare coverage in December. How does this impact our tax filing in April?

The Affordable Care Act (aka Obamacare) uses the filing of taxes to adjust the amount the government subsidizes your health insurance. Since you have just begun receiving assistance with your healthcare insurance costs in 2016 you shouldn’t have anything to report next month as that applies to 2015.

The vast majority of households receive direct subsidies paid to their insurance company during the year. One could opt to pay fully out-of-pocket and then be reimbursed when you file your taxes the following April. However it usually makes sense to go ahead and take the credit throughout the year and then settle at tax time.

For those who received direct subsidizes through Obamacare, their 1040 will require them to verify their family and income situation. If they ended up making a higher income &/or having a smaller family size then they will need to repay part of the insurance premium subsidy.   The maximum repayment for couples and families ranges from $600 for those under 200% of the Federal Poverty Level up to $2500 for those at 400% of the FPL. For those who ended up making more than 400% of the FPL will need to repay the full amount.

Conversely those whose income was lower than expected during the enrollment or have had an addition to the family will be able to receive a tax credit to reflect their true economic situation in the past year.

As I harp on every week in my tax series, any of the free or low-cost tax prep software will walk you through the necessary information and do the math for you!

Hey Paul: I am 24 years old and making a good income but at a small company without health insurance. What can President Obama do for me?

President Obama has a couple of good options for a young person particularly if you are in good health. First, part of Obamacare is to extend dependent coverage up to age 26. Personally I believe that if you are 26 and your Mom is still cooking dinner and doing your laundry and paying for your health insurance there are some codependency issues going on. But by law group plans have to extend this option – if your parents also agree to continue family coverage rather than move to a single or couple plan.

If you can’t get on your parents plan another good option for those under 30 is a catastrophic health insurance plan through Obamacare and the marketplace exchange. “Catastrophic” plans are insurance the way God intended them to be. They are high deductible plans with the first $6600 of expenses other than preventative care coming out-of-pocket. The upside of these plans are they offer the cheapest premiums and may motivate not over-consuming medical services and positive lifestyle changes. Obamacare Silver and Bronze plans for you would run only about $165 and $138 per month, respectively. The catastrophic plan premium will be even less and worth a look!

Dr. Paul Hamilton is an Associate Professor of Economics at Asbury University and a CFP providing financial coaching to middle-class Americans. He is available to provide free workshops to churches, local businesses and other groups.

 Contact him at Paul.Hamilton@Asbury.edu or www.USA-Economics.com