Under the ACA, all U.S. citizens and legal residents are required to obtain government-approved health insurance. This means that individuals are required to pay, from their monthly income, either the full premium amount or a portion of the full premium amount to private health insurance companies for a government-approved health insurance plan. Additionally, individuals are required to provide all dependents with coverage. Individuals who fail to meet this requirement will pay a penalty.
CHILDREN, SENIOR CITIZENS, and AMERICANS LIVING ABROAD
- Each child must have minimum essential coverage (or qualify for an exemption) for each month in the calendar year. Otherwise, the person(s) who can claim the child as a dependent for federal income tax purposes will owe a penalty.
- Senior citizens must have minimum essential coverage (or qualify for an exemption) for each month in a calendar year. Senior citizens will meet the requirement every month during which they are enrolled in Medicare.
U.S. citizens who live abroad for a calendar year (or at least 330 days within a 12 month period) are treated as having minimum essential coverage for the year (or period). These are individuals who qualify for an exclusion from income under section 911 of the Code. IRS Publication 54 discusses this exclusion further.
In 2014, individuals failing to comply with ACA requirements face paying a tax penalty. The penalty is calculated two ways, and the greater of the two calculations will be the penalty amount:
- Flat Fee - The flat fee is phased in over several years. In 2014, the penalty will be $95 per adult in an uninsured household, increasing to $325 in 2015, then to $695 in 2016, after which it will increase annually in line with consumer inflation. For uninsured children, the fine will be half the amount applied to uninsured adults.
- Percentage of Household Income - The percentage of household income is also phased in over several years. In 2014, the penalty is 1% of the household income, increasing to 2% of household income in 2015, then to 2.5% of household income in 2016.
GOVERNMENT-APPROVED HEALTH INSURANCE
Government-approved coverage is a term used interchangeably with "minimum essential coverage" and includes:
- Employer-sponsored coverage (including COBRA coverage and retiree coverage)
- Coverage purchased in the individual market, including a qualified health plan offered by the Marketplace/Exchange
- Medicare Part A coverage and Medicare Advantage plans
- Most Medicaid coverage
- Children's Health Insurance Program (CHIP) coverage
- Certain types of veterans health coverage administered by the Veterans Administration
- Coverage provided to Peace Corps volunteers
- Coverage under the Non-appropriated Fund Health Benefit Program
- Refugee Medical Assistance supported by the Administration for Children and Families
- Self-funded health coverage offered to students by universities for plan or policy years that begin on or before December 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
- State high risk pools for plan or policy years that begin on or before December 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as mimimum essential coverage)
IMPORTANT POINTS that answer common questions:
- Employer-sponsored coverage is generally minimum essential coverage
- Employer-sponsored coverage is minimum essential coverage regardless of whether the employer is a governmental, nonprofit or for-profit entity.
- You, your spouse and your dependent children do not have to be covered under the same policy or plan.
- Grandfathered group health plans provide ninimum essential coverage.
- You will be treated as having minimum essential coverage for a month as long as you have coverage for at least one day during that month.
Minimum essential coverage does not apply to limited benefit plans, such as coverage only for vision care or dental care, and Medicaid covering only certain benefits such as family planning, workers' compensation, or disability policies. If an individual is currently enrolled in a plan with only limited benefits, a new plan meeting minimum essential coverage requirements will need to be purchased.
REPORTING YOUR COVERAGE
Although the individual coverage requirement is effective January 1, 2014, you will not have to report or account for your health insurance until your 2014 income tax return is prepared in 2015. Insurance providers are required to provide their insureds with a document that demonstrates the required coverage and the period in which the coverage was in place. This information will become part of your tax return.
- Religious conscience.You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits.
- Health care sharing ministry You are a member of a recognized health care sharing ministry.
- Indian tribes You are a member of a federally recognized Indian tribe.
- No filing requirement. Your income is below the minimum threshold for filing a tax return.
- Short coverage gap .You went without coverage for less than three consecutive months during the year.
- Hardship. The Marketplace/Exchange has certified that you have suffered a hardship that makes you unable to obtain coverage.
- Unaffordable coverage options. You can't afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
- Incarceration. You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
- Not lawfully present. You are not a US citizen, a US national or an alien lawfully present in the US.
We encourage you to educate yourselves on this law. Listed below are links to websites you will find useful.
Our office will continue to monitor the law and will strive to communicate pertinent information as it becomes available.
McIlvain & Associates, LLC