Demystifying the Individual Health Care Mandate: The Basics

As you may have heard this summer, the Supreme Court of the United States upheld the provision of the Affordable Care Act requiring most individuals to maintain a minimum level of health insurance or pay a penalty.

The purpose of the ACA is to make health care affordable and easily accessible — and the individual mandate, which goes into effect in 2014, is the provision in the law that’s been getting the most attention.

Here’s the deal:

  • Most U.S. citizens and lawful residents will be required to obtain health insurance
  • Those who do not have the option to purchase affordable insurance through their employer, or who are not eligible for government-sponsored insurance (such as Medicare) will be allowed to purchase insurance through a state based insurance exchange
  • Those purchasing insurance through the state based exchange may be eligible for a government-provided subsidy that will cover some portion of their monthly premium
  • Eligibility for and the amount of the subsidy are determined by the size of your household and the amount of household income
  • Those who fail to obtain health coverage will be subject to a penalty

What does this mandate have to do with your tax return?

In 2014, you’ll be required to demonstrate that you maintained health insurance coverage for all of calendar year 2014; the penalty for people without coverage is included on the tax return. To facilitate this process, employers are required to report the amount of premiums paid for employee health coverage directly on the employee’s wage reporting document for the year (the W-2 form). If you obtain coverage through the state-based exchanges, you’ll receive a reporting document from the exchange that details the months you had health coverage and the amount of monthly subsidy, if any, you received.

Rumors have been circulating that the government is now taxing employer provided health benefits. Not true! The only reasons that employers are reporting the amount of health insurance premiums paid on employees’ wage reporting documents is to help facilitate the implementation of the individual mandate provisions and to help employees understand and make comparisons about insurance costs.

Do you need to do anything right now?

If you already have health insurance, you don’t have to do anything right this minute. If you anticipate a change in your situation (you’re getting married, expecting a baby, changing jobs, retiring, etc.) you may want to think about whether you will continue to have health insurance coverage for all family members when the mandate goes into effect in 2014. For example, suppose you currently have health insurance through your employer but you are in the process of starting your own business before the end of 2013. You will need to consider your health insurance options after you no longer work for your employer. One of those options will be to purchase insurance through an exchange.

We’ll have much more information on the health care changes in the coming months, but be sure you understand the basics before the new policies start to take effect.

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