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How to Ease the Pain of the New Health Insurance Mandate

One of the goals of Obamacare is to drive down insurance costs, and to simplify the way people and businesses buy health plans.

The first test of this will begin October 1, when new online insurance marketplaces open their virtual doors. With a single application, individuals and small businesses will be able to shop around for deals from a bevy of private insurers, and to qualify for federal tax credits and price breaks. Everyone must be insured by Jan. 1, 2014 or face penalties.

These marketplaces are so new that everyone has questions about how they’ll work—and whether they’ll work. Will premium costs go up, or down? Who will qualify for cost breaks? How can businesses take advantage of the financial incentives?

Reports are mixed on that first questions. The theory is that head-to-head competition between insurance companies will drive down prices, but that remains to be seen. Some initial reports indicate that rates will increase, but there are some signs they might go down: some insurance companies have already asked to re-submit lower-priced plans after finding out they’d be undercut be rivals. New York Gov. Andrew M. Cuomo recently said average rates will “tumble” by 50 percent for residents of his state. What is certain is that costs will rise for some and drop for others.

Luckily, the answers to the second two questions are more straightforward.

How Can I Get a Break?

Most people who buy their own plans in the exchanges are expected to pay less than the list price. That’s because people of modest or moderate means will qualify for tax credits and subsidies, aka “cost sharing.”

For example, if you are a family of four earning $23,000 to $94,000—up to 400 times the 2014 federal poverty level—will qualify for some tax breaks. The credits are determined on a sliding scale, so the lower your income, the more help you’ll get.

In addition, if you earn less that 250 percent of the federal poverty level—$59,000 for a family of four—you will be eligible for “cost-sharing” assistance. That means you’ll pay less than your share of the costs for your covered expenses. For example, if your insurance plan would normally cover 70 percent of the covered costs, you’d get a break on the remaining 30 percent. You’d only be responsible for 6 percent to 27 percent, depending on your income.

For people who are close to the poverty line, premiums are capped at 2 percent of income. For those higher up the income scale, the cap is 9.5 percent. There are also caps on total out-of-pocket expenses.

The good news is that the tax credits are taken off the top of your monthly premium, so you don’t have to wait for a refund from your tax return. How much you qualify for will be based on your 2012 tax return, and determined when you complete your initial application.

Shoppers in the individual healthcare exchanges will include people who are uninsured, want a better deal on a plan, or who are only offered unaffordable insurance through work. More than 20 million people are expected to benefit from cost reductions.

If your income falls below 133 percent of the federal poverty level—$31,000 for a family of four—you can most likely get very low cost or free insurance through the Medicaid expansion. However, in some states the so-called Medicaid gap will be problematic for some of the lowest income people.

Can My Business Get a Break?

If you have a small businesses with fewer than 50 employees, you face no requirement to offer health insurance to their workers. Even so, a specialized marketplace will open in October for those that do. The Small Business Health Options Program (SHOP) will work in a similar way as the individual marketplaces, offering comparison shopping, uniform standards for plans, and tax credits through a single application.

The amount of the tax credits will be based on that application, and will be applied directly to plan premiums. The smaller your business, the higher your credit. Firms with low payrolls and fewer than ten employees get the biggest break, up to 50 percent off their premium costs. They can also deduct remaining premium costs from their taxes, so they’ll pay a fraction of the market rate. Busy small businesses can also use a broker to buy plans, and the rules say can’t be charged extra.

But even with those incentives, some small businesses that do offer insurance are concerned that premiums will rise. Some are already predicting that they may have to drop coverage for employees’ dependents.

Businesses with more than 50 employees will not be able to buy plans through SHOP at the beginning, and they get an extra year to comply with the new law and offer adequate insurance to all workers. All but a small percentage of those larger companies, which employ 63 million people, already offer coverage. The rest must do so by January 1, 2015, or pay “employer shared responsibility” penalities for each uninsured employee.

Some of the tax rules surrounding the Affordable Care Act are complex, and the IRS is still changing some details. It’s wise to consult an attorney, or an accountant, if you have any questions about how to meet the specific requirements for the size and structure of your business. Find out more about how to shop for plans and what documents you’ll need by visiting Rocket Lawyer’s Affordable Care Act Center.

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