Health Care FAQs
Will Obamacare make health coverage less expensive for the self-employed?
A. It depends on how much they earn.
Self-employed people who purchase individual health insurance through the Obamacare exchanges are eligible for premium subsidies as long as their incomes are between 100 percent (138 percent in states expanding Medicaid) and 400 percent of poverty level (FPL). And cost-sharing subsidies are available for applicants with incomes between 100 percent (138 percent in states expanding Medicaid) and 250 percent of FPL.
The subsidies cap premiums at no more than 9.5 percent of income (and as little as 2 percent for people on the lower end of the income range), and the cost-sharing subsidies lower the out-of-pocket expenses that an insured pays. People who qualify for subsidies can often obtain health insurance that is far better than the coverage they had in the past, for a fraction of the cost.
Subsidies are not available if the applicant has access to an employer-sponsored plan (including a spouse's plan) that is considered affordable, which means that the employee pays no more than 9.5% of income for employee-only coverage.
In states that have accepted the Obamacare provision to expand Medicaid, self-employed people with household incomes up to 138 percent of FPL are eligible for Medicaid. The free premiums are a significant help to entrepreneurs in the early stages of starting their businesses, when income can be quite low.
Self-employed people who do not qualify for subsidies and who did qualify for medically underwritten health insurance in the individual market prior to 2014 may find that their new ACA-compliant plan is more expensive. But it's almost certainly providing better coverage too. And as we go forward, the cost-containment provisions built into Obamacare should help to slow the rise in healthcare costs, which is beneficial to everyone, regardless of income.
How do the self-employed access health insurance through the exchanges?
A. No longer reliant on COBRA health insurance coverage, entrepreneurs can now leave an employer and its group coverage to strike out on their own and start a new business with affordable insurance. With the Affordable Care Act, those with modest incomes could have subsidies to help pay for health coverage as they start a new business beginning in 2014.
To qualify for a health insurance subsidy, your modified adjusted gross income (MAGI) must be between 100 percent and 400 percent of the federal poverty level (400% of the federal poverty level in 2013 is about $46,000 for an individual and $94,000 for a family of four). The subsidies are on a sliding scale; the largest ones are for people earning 100 percent of the federal poverty level, and they gradually decrease as income reaches 400 percent of the federal poverty level.
Business owners can also make pre-tax or tax-deductible contributions to a 401(k), 403(b) or 457 plans, a flexible-spending account or health savings account, a simplified employee pension or a traditional IRA can all lower your modified adjusted gross income.
Also beginning in 2014, insurers won't be able to deny coverage to individuals because of pre-existing conditions or charge you more because of your health status.
Will the self-employed be eligible for ACA premium subsidies?
A. Yes, on both counts.
I'm self-employed. Can my husband deduct his Medicare premiums?
A. Yes. Just last year, the IRS ruled that Medicare insurance premiums can be counted. Under the ruling, Medicare premiums covering the self-employed individual - as well as his or her spouse, dependents, and under-age-27 children - are deductible.
The deduction cannot exceed the self-employed person's earned income - after expenses. For example, if you have net Schedule E income of only $10,000, your deduction cannot exceed $10,000.
I'm leaving my job - and my insurance. Do I qualify for open enrollment?
A. You do not have to continue your plan with COBRA. You qualify for a special open enrollment if your employer-sponsored insurance is ending (assuming it qualifies as minimum essential coverage), even if you have an option to extend it with COBRA. Your special open enrollment begins 60 days before your current policy ends, and you'll need to complete your enrollment in a new policy by June 15 in order to have coverage effective on July 1.
If you do elect COBRA, you cannot later drop it outside of regular open enrollment and opt for an individual plan instead - electing COBRA essentially waives the special open enrollment triggered by losing your employer-sponsored coverage. You have an additional 60 days after losing coverage to enroll in a new plan, so you can take your time and compare COBRA with individual options that are available. (Be sure to factor in premium tax credits and cost-sharing subsidies if you qualify for them.)
If you elect to take COBRA and later decide that you'd rather have an individual plan, you'll have to wait until the next regular open enrollment. (For 2015 plans, open enrollment begins on November 15, 2014.) Exhausting COBRA also triggers a special open enrollment window, because it counts as loss of other coverage.
Can the self-employed deduct their exchange premiums when they file taxes next year?
A. If you're self-employed, yes. If not, it will depend on how much you spend on medical expenses during the year.
When you had employer-sponsored health insurance, your share of the premium was probably payroll deducted on a pre-tax basis, and thus your W2 reflected that fact. You did not have to deduct the premiums when you filed your taxes, because they were not included in the taxable income reported to you on your W2.
Now that you're buying your own health insurance, there are several things to keep in mind:
- If you qualify for an income-based tax credit to lower your premiums, make sure that you've purchased your health insurance through the exchange in your state in order to get your subsidy (if you already purchased off-exchange, you still have until March 31 to switch to an exchange plan).
- If you're self-employed, you're allowed to deduct your health insurance premiums.
- If you buy your own health insurance but you're not self-employed, your premiums simply count as medical expenses. The IRS allows you to deduct medical expenses that exceed 10% of your adjusted gross income (a transitional rule in place until the end of 2016 allows you to deduct medical expenses that exceed 7.5 percent of your AGI if you or your spouse are over 65). Keep track of all your medical expenses throughout the year, as they can add up quickly.
- If you receive a subsidy to offset the cost of your health insurance premiums in the exchange, you cannot "double dip" at tax time. In that case, if you're self-employed or if your total medical expenses are high enough to allow for a deduction, you can only deduct the actual portion you paid, not the portion that was subsidized.
I'm self-employed and am hiring employees. Under Obamacare, am I obligated to provide health insurance for them?
A. No, unless you're hiring at least 50 full-time equivalent (FTE) employees. Businesses with fewer than 50 FTE employees (that's 96 percent of businesses in the United Staes) have no obligation to provide health insurance to their employees.
You may find that the small business tax credit makes health insurance an affordable benefit you can offer your employees. If you have fewer than 25 employees and their average income is less than $50,000, there's a tax credit for your business if you purchase a plan through the SHOP exchange and pay at least 50 percent of your employees' premium.
But the Obamacare employer shared responsibility provision only applies to businesses with at least 50 full-time equivalent employees. They're required to offer affordable health insurance starting in 2015 for businesses with at least 100 FTE employees, and in 2016 for businesses with 50 - 99 FTE employees (the vast majority of these businesses already offer health insurance to their employees).
Employers subject to the shared responsibility provision will be assessed a penalty on their tax return if they do not offer affordable coverage and at least one of their employees receives a subsidy to purchase individual health insurance
If I get an Obamacare subsidy in the exchange, is the subsidy amount considered income?
For premium subsidies, the exchange will keep track of the amount that is paid to your health insurance carrier; it will be reported to you and to the IRS at the end of the year. This is for reconciliation purposes though, not taxation: If your income ends up significantly different than you anticipated, you may have to pay back a portion of the subsidy, or you may receive an additional subsidy when you file your taxes.
Although most people have premium subsidies sent directly to the insurer each month, you can also choose to pay full price for your coverage and receive your subsidy as a lump sum when you file your taxes. Either way, the subsidy is not considered income.