With state-run health care exchanges set to open for business in just one month and two days, the pieces of the puzzle that will make up the Patient Protection and Affordable Care Act, known also as Obamacare, are starting to take shape.
Putting the polls and public opinion on the back burner, we've taken a look in recent weeks at the technological implementation aspects of this bill and how it will challenge cloud-computing developers, as well as the education aspects of informing millions of Americans about where to get their insurance, how the bill will affect them, and how to use this information to their advantage to make smart choices.
Earlier this week, another piece of the puzzle fell into place when the Internal Revenue Service released its final guidelines (link opens PDF) on Obamacare's individual mandate. While a lot of the information in the 75-page document came as no surprise to me or those who've kept abreast on what this bill means for them, prior to this IRS release there were still plenty of questions left to be answered about what constituted minimum coverage and who would or wouldn't face a penalty under the new law. Well, folks, consider those questions answered!
Below I've listed some of the most important aspects of the IRS' 75-page guidelines, which should answer nearly all previously unanswered questions about Obamacare's individual mandate and clear up confusion on how the bill might affect you.
How does the Obamacare individual mandate affect my dependents?
We finally have a straightforward answer to this question. If you file a tax return that claims your spouse or children as dependents, and one or more of them don't have health insurance, you will be paying their individual mandate fine -- or as the IRS surmises, sharing in their responsibility. As Forbes was quick to note, this is an extremely important fine-print note because it ties in so intricately with what United Parcel Service (NYSE: UPS ) did last week by announcing that it would not be allowing approximately 15,000 of its nonunion employees to add working spouses to their health insurance plan in 2014. The move saves UPS some $60 million annually, but could potentially make that employee now responsible for their spouses mandate fine should they not get health care and be claimed as a dependent.
Are there any exemptions to the individual mandate?
Actually, there are a lot more exemptions than many realize! For instance, if you have to pay for your own health insurance and the cost of that insurance totals more than 8% of your household income, you're exempt from the mandate, which will be the case for a lot of seniors. The same is true if you don't file a tax return because you make less than the U.S. poverty line -- you'll be exempt. According to the IRS, recognized religious sects of divisions, American Indians, and those currently incarcerated in American prisons will also be exempt. Special consideration is also given to adopted children who are exempt for the first year following their adoption.
Are there any coverage gap exemptions?
Let's hypothetically say that you forgot to pay your health insurance for a month and it lapsed, or you lost your job and went a month or two without health insurance coverage... would you be penalized? The answer is "no"! The IRS notes that you will be allowed a period of three months or less of lapsed coverage once a year should there be any coverage gaps without the fear of penalty.
I have an employer-sponsored plan -- am I OK?
According to the IRS guidelines, chances are almost certain that you are. Under Obamacare, the minimum benefits coverage has been greatly expanded, raising fears that many employee-based health plans would prove insufficient. Based on the IRS' fine print, it appears that as long as your employer-based health insurance is either a government-sponsored plan (i.e., Medicare or Medicaid), or some form of plan legally purchased within the state in question for small or large groups, then it meets the standards of supplying the minimum health benefit requirements as outlined by the law.
Are there any special employer-sponsored situations?
Yes, there are! In addition to the exemptions discussed above, persons working for temporary staffing agencies are exempt from the mandate as are employees who get coverage through a union-sponsored plan. This could work in the favor of a company like General Motors (NYSE: GM ) , which has roughly 50,000 unionized workers under the United Auto Workers labor union. With a good chunk of GM's staff no longer needing to worry about how the individual mandate will affect them, those employees can instead focus on making GM a great company once again.
What type of fines am I looking at if I choose not to purchase health insurance?
There aren't too many surprises here other than you may have not known that the top-line fine by 2016 of $695 per adult or 2.5% of family household income – whichever is greater -- will adjust higher in line with inflation each year thereafter. The next year, though, will be particularly easy from a fining aspect with penalties of just $95 per adult or 1% of total household income, whichever is greater.
Can the IRS come after me or garnish my wages to collect my mandate penalty?
In what I consider to be an incredibly odd twist, the answer is "no"! The IRS will have no authority to file criminal penalties against you or to seize your property or wages if you fail to pay to your mandate penalties for not carrying health insurance for yourself or your family.
What the IRS can do is withhold your tax refund should you be due one. This could be a defining factor that causes (at least in the first year when the penalties are considerably lower) quite a few people to opt to go without insurance. Keep in mind, though, that many of our nation's largest retailers rely on consumers spending their tax refunds to fuel their bottom line. Wal-Mart (NYSE: WMT ) , the United States' largest employer, missed on earnings earlier this year and blamed, among other things, delayed tax refunds for its weaker results. Just imagine what could happen to its bottom line if the IRS took mandate penalties out of some of these consumers' returns!
The bottom line
There aren't a ton of surprises here save for the fact that the IRS is not planning to actively pursue those individuals who choose to accept the mandate penalty but not pay it.
The biggest implication here could be for individual health insurers like WellPoint (NYSE: WLP ) and CIGNA (NYSE: CI ) , which both recently made hefty purchases -- $4.5 billion for Amerigroup in WellPoint's case and $3.8 billion for HealthSpring in 2011 for CIGNA. Although the primary goal of these purchases is to pick up a big chunk of the 16 million soon-to-be-accepted Medicaid participants under the Medicaid expansion, these companies could really struggle to lock in new participants if it's just easier for some individuals to take a nominal fine, and especially if the IRS has little means at its disposal other than withholding an individual's tax refund. Only time will tell if this proves true, but if I were a betting man, I'd definitely say the lack of IRS follow-through will result in millions more opting for the penalty in the first year than many estimates had planned for.
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