Public vs. Private Health Insurance
Health Insurance in the United States can be obtained either through a private or public exchange. Private health plans are bought individually or coverage can be extended through an employer-sponsored plan. Private plans may cost more, but may have additional benefits not available through the public health care plans. Private insurance plans may also have a larger network of physicians and hospitals. The Public plans are entitlement programs funded by the federal and state governments that use subsidy funding.
Private Insurance within the Exchange (Private Option)
- Private health insurance is a system in which individuals are responsible for securing their own health insurance coverage directly through the exchange with the insurance carrier. Private health insurance is the prevalent system in the United States. Depending on household earnings the private option may be a better solution. Private plans may have additional benefits not available through the public health care plans and may also have a larger network of physicians and hospitals.
Subsidized Insurance within the Exchange (Public Option)
- Beginning in October 2013, low to middle-income people under age 65, who are not eligible for coverage through their employer, Medicaid, or Medicare, can apply for tax credit subsidies available through exchanges. The premium is adjusted for family size, tobacco usage, and age of the user. Premium subsidies are based on the mid-level Silver coverage. Enrollees may pay a lower premium for less comprehensive coverage or may purchase more comprehensive coverage.People receiving subsidies can apply their subsidy toward the purchase of more or less expensive plans, but must pay the difference between the premium in the selected plan and the subsidy. Premium subsidies may not cover the cost of a tobacco surcharge.
The Individual Mandate
The individual mandate requires people legally living in the U.S. to buy a minimum amount of health coverage unless they are exempt. In general, people who don’t have to file taxes due to low income are exempt from the individual mandate.
But how does it work? And what are the penalties for people who don’t get coverage?
How the individual mandate works
When you file your 2014 taxes in 2015, you will need to report whether or not you had health coverage in 2014. If you did have coverage, you will then need to report if you qualified for a tax credit or subsidy. Health coverage includes a group plan, an individual plan, SCHIP, Medicare or Medicaid. If you don’t have health coverage, you will face a tax penalty. Each year, the penalty increases.
What are the tax penalties?
If a person doesn’t have a health plan, they will pay a tax penalty as follows:.
- 2014: Penalty is the larger amount - $95 or 1% of taxable earnings
- 2015: Penalty is the larger amount - $325 or 2% of taxable earnings
- 2016: Penalty is the larger amount - $695 or 2.5% of taxable earnings
What happens if you can’t afford a plan?
You may qualify for a tax credit through an exchange based on income. People earning between 100% and 400% of the federal poverty level can qualify if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare or Medicaid or or SCHIP.
- Individuals with modified adjusted gross incomes of $11,490 to $45,960 a year
- Families of four with modified adjusted gross incomes of $23,550 to $ 94,200 a year.
- Use our calculator to find out what your costs might be
Subsidies: Who is Eligible and How Do They Work?
Starting January 1, 2014, individuals may be able to get subsidies or tax credits when they buy health coverage.
- In 2014, people who qualify may be able to get a Subsidy from the government to help you buy health coverage and pay part of your premiums. You don’t have to wait until tax time to get it as it will be deducted from the cost of your individual plan sold on the exchange.
Who qualifies for the subsidy?
- People who are U.S. citizens or legally live in the U.S.
- People earning between 100% and 400% of the federal poverty level if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare, Medicaid or SCHIP.
Who qualifies for additional Coinsurance Assistance?
- People with incomes up to 250% of the federal poverty level may also qualify for lower cost shares for services covered by the Silver plan. The federal government subsidizes the higher benefits provided by the insurer. This will be managed by the insurance carrier on your health plan.
Who doesn’t qualify
- People who qualify for Medicare, Medicaid or SCHIP.
- People who work for large employers with over 50 full time employees and are offered a qualified plan at work with premiums that cost less than 9.5% of their earnings.
When Open Enrollment Starts
Open enrollment for plans offered through the health insurance marketplace is November 15, 2014 through February 15, 2015. Plan coverage starts as early as January 1, 2014. Coverage effective dates will vary for those that enroll after January 1, 2014. This is basic information and is not legal or tax advice. We encourage you discuss these issues with your own tax and legal advisers. Earnings estimates for subsidies could change upon actual earnings.