Personal Finance

Start checking now on how health care law will affect your finances

Check up now on how insurance changes next year will affect you.

Updated: 2013-01-27T05:54:02Z

By DIANE STAFFORD

The Kansas City Star

Rail against it or bless it, Obamacare is law, and 2013 is the year you need to begin understanding what it will mean to you financially.

The individual health insurance coverage mandate doesn’t kick in until next year, and many vital details remain to be determined. But as early as this fall some Americans will be hit with a pocketbook whammy.

Start your research now so that you won’t say, “Wow. I didn’t see that coming.”

That could include your employer dropping employee health insurance this fall or radically changing your benefits plan to require you to pay more.

That could be big increases in your premium costs, especially for young, healthy people.

That could be hours spent online, searching for a policy among private insurers on a still-to-be-unveiled “Affordable Health Exchange.”

Or that could be more of the same — an inexorable rise in insurance costs, whether paid by you, your employer or the government.

“Health care insurance is boring to a lot of people. I understand that,” said Mark Avery, CEO of Power Group, a Kansas City area insurance broker. “But it’s a significant part of your household budget, whether you or your employer is cutting the check.”

Avery said you should expect that “health insurance rates will go up. Employers and individuals will be faced with options they haven’t had before. You can’t prepare completely, because we don’t yet know the premium costs, but you can inform yourself about the possible changes.”

The individual coverage mandate doesn’t mean you have to buy a private plan on a state- or federal-sponsored insurance exchange. You may be able to keep the plan you have. But you should know that open enrollment for health plans on the exchanges is set to begin Oct. 1.

Many existing large- and small-group plans also will open enrollment for 2014 coverage about that time. Depending on what happens with your employer-sponsored plan, you might find a plan that better fits your coverage needs and budget when you’re able to search on an exchange.

Since Missouri and Kansas aren’t planning state exchanges, area residents are expected to have the federal exchange option available to them this fall.

What’s clear: For 2014 you must have a minimal “essential health insurance” as defined by the government, whether your coverage comes from Medicare, Medicaid, an employer-sponsored health plan, or a plan bought privately, which could be found among those authorized on the insurance exchanges.

A policy may cost you more than you’d like to pay, but at least coverage can’t be denied.

Among groups most likely to see financial effects:

• Employees in businesses with fewer than 50 employees. Employers of that size won’t face a tax penalty if they don’t subsidize health insurance as an employee benefit.

Thus, many small businesses are trying to decide whether to drop employee health coverage. Or they could decide to give employees a “defined benefit,” a set amount of money to put toward buying individual insurance on an exchange.

“If you have group coverage now, talk to your human resource person or whoever is in charge of health care insurance in your company to find out your company’s thoughts,” advised Kansas Insurance Commissioner Sandy Praeger. “They may not have all the details yet, but … it’s not too soon to ask questions.”

• Part-time workers. Some major employers have said they’ll limit part-time hours to under the 30-hour-a-week break point that the government has set for required benefits for large employers.

• Young adults. One study published by the American Academy of Actuaries said premium costs were expected to jump for 8 out of 10 people between ages 21 and 29, some as much as 42 percent over what they’re paying this year.

“This is due to a requirement under health care reform that older individuals be charged no more than three times the premium charged to young adults,” said Ken Mason, a health care attorney at Spencer Fane Britt & Browne. “Currently, a five-to-one ratio is not uncommon.”

Some people who have been able to stay on their parents’ insurance policies up to age 26 will “age out” of coverage.

“We think there will be sticker shock for young people,” Praeger agreed.

• Higher-income tax filers. The employee part of Medicare taxes grows this year from 1.45 percent to 2.35 percent for single filers with earned income of $200,000 or more, for married couples filing jointly with incomes of $250,000 or more, and for married people filing separately with incomes of $125,000 or more.

• Taxpayers who use flexible spending accounts for health care expenses. Starting this year they were capped at $2,500, half the previous amount.

• Most taxpayers who itemize medical expenses. The threshold for deductions rises to 10 percent, up from 7.5 percent of adjusted gross income.

• People who don’t have health care coverage now. The individual mandate requires you to be covered. You may be eligible for government or employer subsidies, but you’re likely to have to pay something you don’t now pay.

The federal reform law provides for an expansion of Medicaid benefits to everyone who makes up to 138 percent of the federal poverty level — up to about $31,800 a year for a family of four, or $15,000 for a single person. Most of the new enrollees would be childless adults who don’t currently qualify for Medicaid.

Neither Missouri nor Kansas has yet agreed to accept federal dollars for the expansion, so that’s something that lower-income area residents should watch closely. Some low-income families may not be eligible for available federal tax subsidies if their states don’t agree to Medicaid expansion.

Overall, here’s a big reason why everyone should pay attention to health reform now, even though the mandate and other changes haven’t yet occurred:

“Health reform represents the single biggest tax code change in more than 20 years,” said Meg Sutton, senior adviser for tax and health care services at H&R Block. “And your 2012 tax return is key to determine whether you will qualify for assistance in 2013.”

Sutton makes it clear that this assistance — premium subsidies — will be available only to qualifying individuals who buy policies on the exchanges. She describes the exchanges as Travelocity-like comparison sites to buy private-market insurance. The exchanges will differ from state to state and are one option for buying coverage.

“But the tax penalties are nationwide,” she said. “If you don’t have insurance from some source, a penalty will be applied.”

After 2013, you will be required to prove that you have health care coverage on your tax return each year.

The penalty for not having insurance will depend on annual income and household size, starting at the greater of $95 a person or 1 percent of income. (Dependents under age 18 are counted as a half.) According to tax experts at H&R Block, $95 is the annual penalty for 2014, but it can be less if you have coverage for part of the year.

The law calls for the tax penalty to rise to $325, or 2 percent of income, in 2015, to $695, or 2.5 percent of income, in 2016, and then be adjusted for inflation.

Even more important: You need to understand the various coverage options available. You need to weigh if it’s cost-effective for your household to have a higher deductible plan. You need to figure out if it makes financial sense to keep your current coverage or shop for something new. You need to understand the financial benefits of “wellness” plans that might be offered by your employer.

Health insurance agents and brokers, tax advisers, health care attorneys and your medical providers can help you choose the best policy for your household. But here’s the key:

You’ll have to understand what the policies cover and how much they’ll cost. You’ll have to invest more time, and probably more money, in managing your health care budget.

Start your education now.

To reach Diane Stafford call 816-234-4359 or send email to stafford@kcstar.com.

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