The New Health Care Law and the Coverage Mandate

Q. Will the new health care reform law force me to buy health insurance? What if I can’t afford it?

A. The new law requires U.S. citizens and legal residents to have health insurance beginning in 2014 (with some exemptions, which we’ll get to shortly). It makes that coverage more affordable by providing subsidies to people with modest incomes who buy their own insurance through new state-based insurance purchasing exchanges. Coverage will also be easier to buy in 2014 when new rules kick in prohibiting companies from charging higher premiums for sicker people or rejecting people with preexisting health problems. It also demands that premiums for older people are no more than three times what a younger person would pay. And the law extends Medicaid coverage to low-income single adults.

“If coverage is not available to an individual at an affordable rate, even taking these tax credits into account, he or she will be eligible for an exemption,” says Jessica Santillo, a spokeswoman for the U.S. Department of Health and Human Services.

Workers who can’t afford to pay the premiums for health insurance offered through their employer can also receive subsidies to buy coverage from the state exchanges if their share of the employer-sponsored insurance would cost more than 9.5 percent of their income.

People who still don’t have insurance won’t be forced to get it, but if they don’t, they will face a tax penalty, which Santillo says will be used to help offset the costs of caring for uninsured Americans.

The IRS will know who has health coverage because insurers will send the agency a statement confirming that the taxpayer is insured. The form will be similar to the 1099 interest form from a bank. Earlier this year, IRS Commissioner Douglas Shulman reassured a congressional committee that IRS agents will not verify compliance directly with the taxpayer.

Some 21 states have filed health insurance-related lawsuits against the federal government. Hearings on those cases are expected to begin in the fall.

Virginia, Georgia, Utah and Idaho have passed laws making the insurance requirement optional, and other states are considering similar measures. Santillo of HHS says those laws are invalid because the U.S. Constitution prohibits states from overriding federal law.

Here are some other questions about insurance requirements.

How will people who can’t afford insurance be able to pay a tax penalty?

The law says the penalty can never be more than the national average cost of the cheapest plan available through the exchanges. The penalty begins small: In 2014 it’s the greater of 1 percent of taxable income or $95 per adult family member (half that amount for a child), for a maximum of $285 per family. In 2015, it rises to 2 percent of taxable income or $325 per adult for a maximum of $975, whichever is higher. In 2016, the penalty is the greater of 2.5 percent of taxable income or $695 per family member with a maximum of $2,085. After 2016, the penalty grows with the cost-of-living adjustment.

Who is exempted from the requirement?

The exceptions to the rule include people without coverage for less than 90 days, American Indians, people in prison and Americans living outside the United States. Others who are exempt include people who don’t file taxes because their income is too low and those for whom the least expensive plan costs more than 8 percent of their income in 2014. The secretary of Health and Human Services also has authority to grant exemptions if buying insurance violates an individual’s religious beliefs or would pose an economic hardship. Criteria for the religious exemption has not yet been established, and a Treasury spokeswoman said no religious groups have received exemptions.

What kind of health insurance will be acceptable?

Any individually purchased plan qualifies, as well as coverage obtained through an employer or through government programs such as Medicare, Medicaid, the Children’s Health Insurance Program and the Department of Veterans Affairs

Susan Jaffe of Washington, D.C., covers health and aging issues and writes the Bulletin’s weekly column, Health Care Reform Explained: Your Questions Answered.