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 (ACA), 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; however, it remains largely in place today. Here are the four main things the self-employed need to know about the Affordable Care Act as of 2021.

You Are Not Longer Required to Have Health Insurance or Pay a Penalty in Most States

The Affordable Care Act originally came with an individual health care mandate--all Americans (subject to certain exemptions) had to 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. This provision was eliminated in 2019--today, there is no federal individual health care mandate. However, a few state have enacted their own individual health insurance mandates that apply only to state residents. These include California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont. Other states are considering enacting their own mandates as well. If you're self-employed and don't live in a state with its own health insurance mandate, your decision as to whether or not to obtain health insurance is purely voluntary. This is the same as it was prior to the enactment of the Affordable Care Act in 2014.

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 allowed states to let health insurers offer cheaper short-term (up to one-year) health insurance plans that exclude coverage of pre-existing conditions, including pregnancy. Such plans are ordinarily cheaper than regular ACA-compliant coverage. All but eleven states allow such plans to be sold.

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.
The ACA also requires that plans cap the maximum out-of-pocket costs for enrollees.
All but eleven states 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 (the 2021 enrollment period was extended due to the COVID-19 pandemic). 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

Health insurance is available to all self-employed individuals through the state exchanges. However, it often isn't by cheap. Fortunately, to help people obtain coverage, the Affordable Care Act includes a premium assistance credit for those who purchase health insurance from a state exchange.
The credit is usually paid directly to health insurers by the federal government. Under the regular rules, the credit is only available to individuals whose household income is between 100% and 400% of the federal poverty line. This is a relatively modest income--for example, $51,040 for a single person and $104,800 for a family of four. If you earn one penny more than 400% of FPL you get no tax credit at all--a "subsidy cliff."
However, for 2020 and 2021 only, the subsidy cliff was eliminated. During these years, individuals and families with income over 400% of the poverty level can qualify for a premium subsidy if the cost of the benchmark silver plan would otherwise be more than 8.5% of the household's income. For example, if your household income is $100,000, you have to pay no more than $8,500 for health insurance during 2020-2021. If the benchmark silver plan in your area costs $15,000, you're entitled to a $6,500 subsidy.

You can obtain an estimate of the credit you could qualify at the Kaiser Health Reform Subsidy Calculator. For more information, see HealthCare.gov.

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