Open Enrollment: How Obamacare Could Affect Your Wallet in 2016
What buying health insurance under the Affordable Care Act means for your budget next year
November brings falling leaves, Thanksgiving feasts and a relatively new annual event: open enrollment season for buying health insurance under the Affordable Care Act (ACA).
Here are two things you need to know about how the ACA could affect your family’s bottom line in 2016.
1. Premiums will rise. They’ll go up by an average of 7.5 percent if you live in a state that offers plans through the federal government's Health Care Marketplace, according to the Centers for Medicare and Medicaid Services.
If you live in a state that uses a state-level marketplace, you also may see increases. For instance, the Minnesota Commerce Commissioner has approved rate increases averaging 14 to 49 percent.
But not everyone will have to pay the full increase, and some people won't pay an increase at all. Your income may qualify you for discounts, says Hector De La Torre, executive director of the Transamerica Center for Health Studies. “Over 80 percent of consumers in the [Marketplace] Exchanges qualify for discounts, so they do not pay sticker price.”
2. Tax penalties for not having insurance will rise. If you don't sign up for a plan that covers you during 2016, you'll have to pay the higher of these:
- 2.5 percent of your household's annual income, or
- $695 for each uninsured adult and $347.50 for each uninsured child under 18
It's “extremely unlikely” that Congress will reduce or forgive these penalties, says De La Torre. “Any changes would require additional cuts or tax increases to make up the difference in the federal budget,” he says. “In fact, these increased tax penalties year over year are intended to increase the motivation for individuals to meet the health coverage mandate.”
The maximum penalty you would have to pay for not having health insurance in 2016 is $2,085, compared with $975 in 2015. You’d pay it when you file your tax return in 2017. However, some people may be exempt from penalties.
Buy the right plan: bronze, silver or gold?
When you apply for insurance through the Marketplace, the system will automatically estimate whether or not you're eligible for a premium credit. This is a refundable credit designed to help low- and-moderate income people afford health insurance. If you qualify, in most cases you'll have the choice of using it to lower your premium or applying it to your tax return. You can also check with the Internal Revenue Service to see if your household is eligible.
To receive the tax credit, you'll have to enroll in a Silver plan, because the lower-priced Bronze plans won't accept it.
If you’re not eligible, try lowering your modified adjusted gross income "to the point where you would be eligible," says Joseph Popp, a tax attorney who manages ACA compliance and consulting initiatives for Rea & Associates in Ohio. For instance, if you deposit money into a tax-deferred retirement account — such as a traditional IRA — you can deduct that amount from your income on your tax return.
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To help figure out which plan is right for you, start by trying to predict your health care needs over the coming year, Popp says. “Some of this is in your knowledge and control, some of it isn’t.”
For instance, if you're pregnant and expect to visit the doctor a lot, consider purchasing a Silver or Gold plan, he says. Although they have higher premiums than Bronze plans, the deductibles and co-pays are lower. “That lets you spread out cost throughout the year rather than having to pay a big deductible all at once at the beginning of the year,” he says.
On the other hand, if you're healthy and don't visit doctors much, a low-cost Bronze plan keeps your monthly bills down while protecting you against an unexpected accident or illness. “The Bronze plans are mostly there for the free services provided," plus you're still paying less than market price for prescription drugs and other health services, says Popp.
Prescription coverage varies from state to state, so ask the insurance company which drugs they cover.
Notify the Marketplace of any expected changes to your income or household. Otherwise, your premiums, discounts or coverage may be wrong. And if the discount is too high, the IRS will bill you for the difference in 2017.
Open enrollment ends January 31st.