Final Obamacare Regulations are in Place

Of the many provisions found in the Affordable Care Act, none is as contentious as the individual mandate. This provision, which requires that affected American purchase health insurance or pay a fine, goes into effect January 1, 2014. The Obama administration released the final regulations for the healthcare reform mandate earlier this week; however, these regulations indicate that the individual mandate will not be the healthcare enforcer that both proponents and opponents claim it to be.

The individual mandate will require taxpayers to cover their dependents (as reported on annual tax returns) or assume the fine for not doing so. The employer mandate, meanwhile, does not require employers to offer insurance for dependents. This could potentially force many individuals to seek supplemental health coverage for their spouses and children in the healthcare marketplace.

In addition, any employer-sponsored coverage will largely meet the mandate’s threshold of “minimum essential coverage”. This has already led to employers offering low-cost plans that cover very few services, and will be a strong incentive to other employers to follow suit.

Both of these are troubling characteristics of a hugely unpopular mandate. Other regulations, though, exempt as much as 40 percent of the population from the individual mandate; people exempt from the individual mandate include:

• The elderly, whose higher premiums and lower income may drive the cost of their coverage over the established limit of eight percent of household income (though a much lower income will qualify individuals for tax subsidies, in which case the mandate applies);
• Those who don’t file IRS tax returns;
• “Members of recognized religious sects” – these protected populations belong to groups such as the Amish that have existed since the end of 1950 and whose tenets are opposed to taking advantage of benefits such as Social Security, Medicare, and Medicaid in addition to health and life insurance plans;
• American Indians – members of recognized Indian tribes already receive government health care through the Indian Health Service.

The prescribed fine (the loftily-titled “Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage”) for failing to purchase health care is itself minimal compared to the potential costs of purchasing outside health coverage. Each taxpayer is responsible for their individual fine as well as the fines for up to two dependents. The fine will increase parallel with cost-of-living adjustments, from the greater of $95/1% of income to the greater $695/2.5% of income per person from 2014-2016.

Even so, the fine’s increase is still smaller than annual insurance premium increases historically. It may be a better financial decision for some people to pay the fine and continue without coverage. Furthermore, the IRS is specifically prohibited from penalizing non-exempt taxpayers who fail to purchase health care or pay the fine; the only thing they are able to do is withhold the fine from your tax return (if you don’t file, see above).

The effectiveness of the individual mandate remains to be seen for consumers, facilities, and vendors, but combined with the employer mandate we will see a large number of new enrollments in healthcare plans around the country.

To ease the transition, and offset the added cost of exempt or non-compliant patients, consider healthcare factoring to keep your cash flow sound.