Do you know even one freelancer who loves dealing with health insurance and tax issues?
I don’t. And, frankly, the ongoing confusion about Obamacare is mostly making things worse: When are we required to have coverage? Can we keep our current insurance plan or not? Are the health insurance exchanges working or still wrecked?
The following crib sheet will help you understand what self-employed folks need to know about health insurance under the Affordable Care Act (ACA), including how to avoid getting tripped up at tax time.
- You must have health insurance, unless you are legally exempt. You are required to sign up for a health insurance plan by March 31, 2014. If you don’t, you may have to pay a tax penalty. There are limited exceptions to this rule. (For more information about the penalty and exemptions, see below.)
- You can no longer be denied coverage or charged more because of pre-existing conditions. This is a great advantage for many self-employed people with health conditions who’ve had to do without insurance because of the outrageous costs of securing coverage. If you’ve been turned down or priced out in the past, you should have many new options for coverage under the ACA. And if your annual income is less than $46,000, you’ll probably qualify for subsidies to help pay for your new insurance.
- If you don’t like your current plan, you can shop for a new plan using the new health insurance exchange for your state. All plans offered by the marketplace offer a package of essential benefits required by the ACA, including hospitalization, prescription drug coverage, preventative care, and more. (To find your state’s exchange, see below.)
- If you do like your current plan, you may or may not get to keep it. As trumpeted in the news of late, health insurance providers have canceled plenty of existing plans that don’t meet ACA requirements. People who buy individual coverage—that’s lots of us who are self-employed—have been disproportionately likely to lose their current plans. If this has happened to you, what’s next is not entirely clear. You may have to head to your state’s exchange to buy a new plan—or you may get to keep your old plan, at least temporarily. The Obama Administration, Congress, and insurance companies are currently hashing out new rules. If you want to keep your old plan, get in touch with your insurer to see whether that might be possible. You can also visit The Washington Post to view the current list of states in which insurers will be allowed to renew older plans.
- If you purchase a new plan from your state’s exchange, you may qualify for cost-saving subsidies. New tax credits may lower your monthly premiums and/or reduce your out-of-pocket costs for health care. To qualify for subsidies in 2014, you need to make less than about $46,000 per year as a single person. (To learn more about cost saving options, see below.)
- If your income is very low, you may have a better chance of qualifying for free health care through Medicaid. More than half of the states have expanded eligibility for Medicaid under the ACA. If you’ve been denied state-sponsored health care in the past, you may want to apply again. When you fill out an application for health coverage at your state exchange, your eligibility for Medicaid will be determined automatically—or you can contact your county’s Medicaid office directly to learn more. (To find out whether your state is expanding Medicaid, see below.)
- If you qualify for cost-saving subsidies and your self-employment income fluctuates, your taxes could get more complicated. When you apply for coverage at your state exchange, you’ll estimate your annual income and your eligibility for subsidies will be calculated automatically. As your income rises, your eligibility declines. That means that if you underestimate your income during the application process, you may end up owing money to the IRS at tax time. If you overestimate, you may get money back. The bottom line is that you shouldn’t make this estimation casually. If you do, you could end up with an unpleasant surprise when you file your 2014 tax return.
This information is adapted from an article I wrote for ObamacareByZipCode, a website started by my friend Albin Renauer after he read about the conservative state governors—hello Missouri, Florida, Ohio, Georgia—who have been actively trying to hide vital health care information from their citizens. Essentially, Albin got pissed off and used that energy to build a good thing.
To learn more about all the topics discussed above, head over to ObamacareByZipCode and select your state or enter your zip code.
You’ll be taken to a page that’s packed with information about the new health care law and how to get coverage where you live, including links to the official health insurance exchange for your state.
Finally, even though a lot of the health insurance exchanges are broken or slow—and that’s frustrating—don’t use the government fail as an excuse to put off learning the basics of how the law affects you. There’s no indication that any of the provisions affecting freelancers are going to disappear or change anytime soon, so giving a little time to researching your health care options will be an investment well made.
Update: On December 19, 2013, the Obama administration announced that people whose insurance plans were canceled qualify for a hardship exemption from the law, for the year 2014 only. That means if your plan was canceled and you decide to go without insurance in 2014, you won’t have to pay a tax penalty in 2015. As an alternative, you are now allowed to purchase a minimal “catastrophic” insurance plan, if you prefer.