The Affordable Care Act and the Self-Employed

From the health insurance mandate to tax credits, there are big changes in health care under the Affordable Care Act.

Unlike virtually every other industrialized nation in the world, the United States has never had a national universal healthcare coverage program. The elderly obtain federally subsidized coverage through Medicare, while the poor may obtain free or low-cost coverage through Medicaid funded by the federal government and the states. However, the majority of Americans obtain their health insurance through their employers. This system may work out for many employees, but it has never been great for the self-employed.
Indeed, for decades, one of the biggest problems faced by the self-employed—particularly those with preexisting conditions--was obtaining and paying for health insurance. Many self-employed individuals obtained coverage through a spouse whose employer provided family coverage. Many others who didn’t have this option had only limited major medical coverage or went without health insurance entirely. And, the inability to obtain affordable coverage kept many people chained to jobs that provided them with health insurance, rather than striking out on their own and becoming self-employed.
As a result of the Affordable Care Act (popularly known as "Obamacare"), the health insurance situation for the self-employed changed radically—largely for the better. The Affordable Care Act has undergone many changes since it first went into effect on January 1, 2014. But, despite efforts by the Republican-led Congress to hobble the law, it remains largely in place. Here are the four main things the self-employed need to know about the Affordable Care Act as of 2019.

You Are No Longer Required to Have Health Insurance or Pay a Penalty

Effective starting in 2019, individuals (including the self-employed) who fail to obtain health coverage will not be penalized under the Affordable Care Act. Thus, if you’re self-employed, your decision as to whether or not to obtain health insurance for 2019 and later is purely voluntary. This is the same as it was prior to the enactment of the Affordable Care Act in 2014.
When first enacted, the Affordable Care Act included a requirement that all Americans (subject to certain exemptions) obtain health insurance coverage for themselves and their families or pay a penalty to the IRS. This individual health insurance mandate applied to the self-employed as well as to everybody else. The individual mandate went into effect on January 1, 2014 and remained in place through 2018. Congress effectively eliminated the individual mandate starting in 2019 by reducing the penalty for noncompliance to zero. The elimination of the individual mandate is likely to have a profound effect on the cost of health care over time because it is expected that many younger healthier people will choose not to have health insurance which will increase costs for everyone else.
Some states have enacted their own individual health insurance mandates that apply only to state residents. Massachusetts and New Jersey have both done so starting in 2019. Vermont has done so starting in 2020. Other states are considering enacting their own mandates as well.

You Can't Be Denied Coverage Because of a Preexisting Condition

In the past, health insurers would often deny coverage to individuals with preexisting health conditions or charge them substantially higher rates than those charged for healthy people. Insurers could, and would, cancel coverage for people who got sick. All of these practices were banned by the Affordable Care Act. Health insurers are not allowed to charge higher rates based on the insured's gender or health status, and your insurer can't cancel your insurance if you get sick. Despite the attacks on the Affordable Care Act, these protections remain in place.
However, starting in 2020, the Trump Administration will permit states to allow health insurers to offer cheaper short-term (up to one-year) health insurance plans that exclude coverage of pre-existing conditions, including pregnancy. This does not mean all states will allow such plans to be sold. It’s unclear which, if any, will do so.

You Can Purchase Coverage through a Health Insurance Exchange

The Affordable Care Act revolutionized the way individuals and businesses purchased health care. It established online health insurance exchanges (also called marketplaces) through which people can shop for the coverage available in their area and then apply online. The health insurance exchanges remain in place. A majority of states use the federal exchange at www.healthcare.gov; but several have their own state exchanges. You’ll be directed to the appropriate exchange from the healthcare.gov website.
The health plans available on these exchanges must provide at least the following essential health benefits:
  • ambulatory (“walk in”) patient services
  • emergency services
  • hospitalization
  • maternity/newborn care
  • mental health and substance use disorder services (including behavioral health treatment)
  • prescription drugs
  • rehab and habilitative services/devices
  • lab services
  • preventive/wellness services and chronic disease management
  • pediatric services (including oral and vision care).
There are four levels of coverage available, each of which cover a specified percentage of an individual enrollee's covered benefits:
  • bronze, which covers 60% of covered benefits
  • silver, which covers 70% of covered benefits
  • gold, which covers 80% of covered benefits, and
  • platinum, which covers 90% of covered benefits.
Obamacare also requires that plans cap the maximum out-of-pocket costs for enrollees.
Starting in 2020, the Trump Administration will permit states to allow health insurers to offer cheaper short-term (up to one year) health insurance plans that provide much skimpier benefits than those outlined above.
You may purchase health insurance through your state health exchange only during the annual open enrollment period. In most states, the open enrollment period is November 1 to December 15 for coverage to start the following year; however, some states have longer open enrollment periods. After the open enrollment period ends, you may obtain coverage only if you have a life change that gives you a special enrollment period—for example, you move, lose your health insurance, get married or divorced, or have a baby. You can also get Affordable Care Act coverage anytime if you qualify for Medicaid in your state.

Health Insurance Tax Credits Are Available for Lower-Income People

Health insurance is available to all self-employed individuals through the state exchanges. However, it often isn’t by cheap. Because of a lack of funding by the Trump Administration and uncertainty created by the attacks on the law, premiums have risen substantially in recent years in many states. Fortunately, to help lower income people obtain coverage, the Affordable Care Act includes a premium assistance credit for those who purchase health insurance from a state exchange. Despite efforts to alter or eliminate it, this credit remains in place. Indeed, as health insurance costs have risen, so has the average credit.
The credit is usually paid directly to health insurers by the federal government. The credit is available for those whose income is between 100% and 400% of the federal poverty line. Based on 2018 poverty levels, the credit phases out at $48,560 for individuals and $100,400 for a family of four. The most that families buying coverage in an insurance exchange have to pay towards a health insurance premium ranges from 3.0% of income at 133% of poverty to 9.5% of income at 400% of poverty.

This credit can be substantial--for example, a 50 year old single person earning $30,000 per year could qualify for an annual credit of almost $4,000 to help pay for silver plan coverage. You can obtain an estimate of the credit you could qualify at the Kaiser Health Reform Subsidy Calculator.

For more information, see HealthCare.gov and How Does the Tax Cuts and Jobs Act Affect Obamacare?

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