Tick, tick, tick – March 31 is the new deadline to get health insurance coverage. This time, the government is digging in its heels. There will be no extension. Some say the government will cave in (again) and move the deadline, but that’s by no means a certainty. The April Fool’s joke might be on you if you don’t have a qualified health insurance plan locked up the night before, and the deadline ends up staying in place.
For about 80 percent of you, that’s a non-event, because you’re covered already either through work, Medicare, or with private policies you bought. For the rest, Obamacare is something you will need to come to grips with, like it or not. This is the first of a two-part look at the new medical insurance landscape, and your best options.
Obamacare’s main goal is to force medical coverage on the roughly 60 million uninsured out there. Why the government wants to do that is a question that has been debated in the press ad nauseum. The reality you face is that if you were one of the 60 million, you no longer have that option. By March 31, you have to have a qualifying insurance policy. If not, well, we’ll get to that below.
Why the deadline? Why not allow people to get medical insurance in their own time? Health insurers fear that people will only get a policy when a medical catastrophe hits them. As one insurance spokesman put it, that would be like buying a fire policy when the house is on fire — bad business for insurers. That’s why there’s a hard deadline of March 31.
If you want to obtain qualifying coverage after March 31, you will not be able to. There will be another open enrollment period starting November 2014, but those policies will not take effect before 2015.
The media is filled with chatter over whether the government will be forced to extend the deadline yet again. Time will tell whether it happens, but why gamble? The question no longer is whether, but when.
Not everyone will be penalized if they’re not enrolled by March 31. You’ll be given grace to enroll later only in the following situations:
- Glitches: The government has indicated that if you can prove that you started the process but were unable to complete it (hello, website), you will not be penalized for a late enrollment.
- Any change in employment status
- You have a baby (or adopt one)
- Kids leave home
- You move out of state
- There was a change in coverage in a spouse’s employer plan
- Entitlement to Medicare or Medicaid
Anyone with one of those “qualifying events” will be given sixty days after that event to get qualifying coverage.
Given the high level of resistance from the people who elected it, the government pretty much had to put some severe penalties in place to ensure compliance. Any insurance plan only works if those with low risk participate to spread the risk.
If you don’t have qualifying health insurance coverage, the IRS will levy a fine on your tax return. For most people, it will be 1 percent of their household income. But that’s only this year. In only two years’ time, it will be 2.5 percent. For a couple earning $90,000 a year, that amounts to just over $2,000. For a $45,000 combined income, the fine would be just over $1,000. (You would still have to pay for all medical costs on top of that.)
- Every taxpayer now will have to bring a certificate from insurers to prove coverage. (Just what the people who want to simplify the tax process want.)
- If one spouse has qualifying coverage (through his or her job, for instance) and only one doesn’t have coverage, the full fine will be levied on both incomes.
- If you have coverage for part of the year, you’ll owe a prorated penalty. It’s calculated based on the number of months you didn’t have coverage, with each month costing you 1/12 of the full-year penalty. So if you’re uninsured for six months, you’d owe half of 1 percent of your income.
- If you’re uninsured for fewer than three consecutive months, you won’t have to pay a penalty.
Enforcement of the penalty is withholding of refunds, nothing more. People who decline to buy coverage would have the penalties deducted from their tax refund, not an insignificant enforcement tool, considering three out of four families qualify for a refund.
It’s not clear what would happen to those who don’t get a tax refund. The IRS can’t put people in jail or garnish wages to get the money. Underestimating the creativity of the IRS to get money, however, has never paid off.
However, the government’s main agenda is not making criminals out of ordinary citizens, but getting people covered.
There are two classes of exemptions — the first simply based on status and the second based on hardship. Some of these exemptions are:
- Affordability — the cheapest option available would cost more than 8 percent of your household income
- Your income is low enough that you’re not required to file a tax return
- You belong to a federally recognized tribe
- You’re a member of a recognized healthcare-sharing ministry (more about that next time)
- You’re a member of a recognized religious sect with religious objections to insurance
- You’re incarcerated
- You’re not in the country legally
(As laws change, does jail look like a better option? It may just give new meaning to “freedom has a price.”)
Some hardships will allow you to claim temporary exemptions while those conditions persist:
- Being homeless
- Being evicted in the past six months or facing eviction or foreclosure
- Receiving a shutoff notice from a utility company
- Recently experiencing domestic violence
- Recently experiencing the death of a close family member
- Experiencing a fire, flood or other disaster that caused substantial damage to the person’s property
- For six months after filing for bankruptcy
- Having medical expenses you couldn’t pay in the past two years
- Having unexpected additional expenses as a result of caring for an ill, disabled or aging family member
All eyes are on the enrollment numbers, which to date have been much lower than the government had set as a target. However, this is a nation that proves every year at tax time that there’s nothing like a deadline to get things done. That means we can expect a flurry of sign-ups in the next week or two.
Unlike your income taxes, though, you will be given grace if you can prove that you tried to get your insurance in place but couldn’t get it done.
Next time we’ll take a look at some options and strategies that have opened up recently, which could turn the new dispensation to your advantage in ways nobody foresaw.