ACA/Obamacare and the Self Employed/Entrepreneur
“How is the Affordable Care Act (ACA) going to affect me? Where am I going to find the money to pay for an added expense? I’m not even sure I need health insurance, I’m healthy.” These are the most typical questions asked by people, who have started their own business and are sole proprietors with no additional employees, as the new health care exchanges begin to roll out. The efficacy of ACA has been debated ad nauseum in the media and political arenas for over two years. So, let’s get straight to the facts and explore how using the state or federal health exchange will be a good investment that will help the sole proprietor at a very low cost.
First, based on preliminary information purchasing a health care plan through ACA may be less expensive than a comparable health plan, which is completely opposite of what many right leaning media organizations suggest. These organizations have spent nearly one billion dollars trying to “scare” people, especially small business owners and sole proprietors, into believing that rather than saving the enrollee money, it will drive health care premiums up, keep the enrollee from seeing the same doctor they have for many years, and cause them to have higher taxes. What are the real facts? A health care plan through the exchange is likely to be as good as or better than the policy in which a sole proprietor is currently enrolled. People are often surprised when they determine that the health care plan they have thought had ”incredibly good” coverage barely matches up to the lowest level, bronze plan offered through ACA. However, a sole proprietor can also simply choose to maintain their current plan if they obtained it prior to 2010. This may or may not save money and it is important to remember there is not a guarantee that plans that are “grandfathered in” include the minimum or essential benefits mandated by the ACA.
The ten essential benefits which must be included in a person’s health insurance effective January 1, 2014 include, but are not limited to, ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. (https://www.healthcare.gov/glossary/essential-health-benefits/) These benefits must be a part of any health care plan offered to enrollees regardless of whether buy insurance through the state or federal exchange or in the private arena unless a sole proprietor chooses to “grandfather” in a health insurance plan they have had prior to March 23, 2010. (http://outright.com/blog/what-sole-proprietors-should-know-about-the-affordable-care-act/)
It is important, as will be explained, that a sole proprietor verify whether their current insurance plan contains these provisions as well as the lifting of a life time cap and per year cap on payable benefits prior to deciding whether or not to keep their previous plan. If a sole proprietor chooses to “grandfather” in their current health plan, there are no safety nets or rules that insure that the “grandfathered” plan has the same provisions as a plan purchased through the health care exchanges. These plans may not give the sole proprietor the protection they need if a an unexpected catastrophic illness or accident happens.
Just because a business is brand new or doesn’t include any other employees doesn’t mean the owner can’t afford health insurance. The new healthcare law will not be devastating to your attempt to experience “the American dream” as some pundits have predicted. In fact, as will be outlined, nothing could be farther from the truth, enrolling in a health care plan through the exchange may “save” your business. When starting a new business, health insurance is often thought of as an “added” cost, a luxury and/or something that is simply not a necessity. New business owners often take a risk and hope that they won’t find themselves in a position of needing health insurance, in the first year or even few years, while building their business. ACA will protect sole proprietors when or if someone in their immediate family, experiences a medical catastrophe (accident, injury or illness). ACA better protects Americans and specifically sole proprietors because of the ten essential benefits, previously outlined, as well as changes in deductibles, out of pocket yearly maximums and life-time maximums an enrollee must pay. No one disputes the soaring costs of medical care. Development of new technology combined with an aging population, rising incomes and other variables, have resulted in medical care consuming a larger and larger portion of the nation’s economy for years, jumping from about 5% of the gross domestic product in 1960 to over 17% in 2010. (http://articles.latimes.com/2010/feb/04/nation/la-na-healthcare4-2010feb04)
ACA protects the sole proprietor because there will be no limit on the maximum amount a health insurance company will pay if someone has a life changing accident or diagnosis such as cancer. The ability to purchase adequate health insurance for the sole proprietor is an absolute must in order to protect themselves and their company. There are countless stories of people who have lost their homes, their business, and everything due to overwhelming medical bills which have led to bankruptcy. In fact, over sixty percent of bankruptcies filed each year are due at least in great part to medical bills. (http://www.dailykos.com/story/2012/01/05/1051848/-Medical-bills-cause-62-percent-of-nbsp-bankruptcies) ACA also has other added benefits for the self-employed individual. Many companies started by an entrepreneur are family businesses and the owner wants one of their offspring to join the family business. ACA allows children to be covered by their parent’s policy until the age of 26, regardless of whether they are in college or working. ACA also guarantees that anybody can be covered even if they have a pre-existing condition without an enormous increase in premiums or even being denied health insurance due to that pre-existing condition. The PCIP (Pre-existing Condition Insurance program) was rolled out almost 3 years ago and more than one hundred thousand people who were previously uninsured have been able to BUY insurance at a reasonable cost based on their age. ( https://www.pcip.gov/) This program offered insurance equal to the silver plan offered in the new health exchanges. Prior to the development of the healthcare exchanges many variables impacted the premium a sole proprietor was charged, including but not limited to age, gender, health status, and even being of child bearing age. Premiums though the exchange will be calculated on age, but may have an extra charge if the person is a smoker. These changes will result in a significant cost savings for most sole proprietors. Prior to the implementation of ACA the cost of health insurance for people trying to buy a private health insurance plan was considerably more costly, than for those people who obtained health insurance as a part of a large group. The exchanges allow sole proprietors to obtain health insurance at prices equal to or less than many group health insurance rates.
The ACA law clearly indicates that by January 1st, 2014 you must have healthcare insurance as laid out by the individual mandate. The health exchanges will be available for you to choose your plan on October 1st, 2013. Remember you have several months to determine which plan you want and to compare plans offered by various companies. Why is this important? As a business owner, you understand the need to find the best product at the best price in order to be successful. The exchanges allow you the freedom to shop for insurance plans like you would for any other product such as a car or television. The new healthcare exchanges reflect “the open marketplace” at its best in a democracy.
How does a sole proprietor/business owner go about finding the best plan? The first thing to do is to find out whether your state has elected to run its own healthcare exchange or whether they have elected to use the federal health exchange. The Kaiser Family Foundation has a website that clearly identifies what each state has chosen to do. Go to http://kff.org/health-reform/state-indicator/health-insurance-exchanges/ and find your state. If your state has chosen not to set up its own health exchange you will be able to choose a plan off the federal exchange. If the state in which you reside is offering their own state run health exchange you will be redirected to the correct website to find the best plan for you. The federal government has tried to make finding the best insurance plan for sole proprietors and small business owners a fairly simple process. When you are ready to begin comparing the plans go to this website: https://www.healthcare.gov/marketplace/shop/.
Be sure and look carefully at the plans. When choosing a health care insurance plan it is important to understand the various types of plans available within the exchange. There are four levels of plans range from the bronze plan which is the least expensive, but also has the highest co-pays and deductibles to the platinum plan which has the highest monthly cost but also has the lowest co-pays and deductibles. Some of these plans are eligible for tax incentives and even reducing the deductible and/or out of pocket yearly expenses. There are many things to consider when selecting a plan, such as does the plan have dental or other coverage? What are the deductibles and co-pays? Am I eligible for subsidies, a decrease in my deductible and a lesser out of pocket maximum? While some tax incentives such as the premium subsidies can be used toward any plan, certain tax incentive are only available on the bronze or silver plan. There are many other things to take into consideration when deciding about the company you select, such as are the medical professionals I currently use covered by the company and what do they charge? If you want your health insurance to be effective January 1, 2014, you have two and a half months to make a decision on what plan is best for you. Take the time to run the numbers and decide which plan makes the most sense for you. If you are unsure about how to choose the best plan and insurance company for you and your family, contact a health care advocate who can analyze your needs and make suggestions based on your personal needs.
If an entrepreneur/sole proprietor chooses not to obtain health insurance coverage for 2014 they will incur a tax penalty. In 2014 the tax penalty will be $95.00 or 1% of income, whichever is higher. The penalties will increase through 2016 when the minimum penalty will be the greater amount of $695 or 2.5% of income. (https://www.healthcare.gov) After 2016, the penalties will be adjusted based on the cost of living increase. A sole proprietor must ask themselves, is this penalty worth not purchasing health insurance? However, there is even a more important question sole proprietors must ask themselves. ”Am I willing to risk my business on a hope and a prayer?” The risk is high because no one can predict if and when something catastrophic may occur. ” People often ask, why is there a penalty? Why am I being told “I have to” buy health insurance? The answer to this is both simple and complex. In 2011, there were nearly 50 million people without health insurance. (http://money.cnn.com/2011/09/13/news/economy/census_bureau_health_insurance/index.htm) In addition, the Emergency Medical Treatment and Active Labor Act that was passed in 1986 guarantees that people who go to emergency rooms for care cannot be turned away based on the lack of insurance or inability to pay. (http://en.wikipedia.org/wiki/Emergency_Medical_Treatment_and_Active_Labor_Act). These two factors have resulted in an increased reliance on Emergency Rooms for non-emergency care. It is estimated that hospitals provide almost 40 billion dollars of uncompensated care annually. http://digitalcommons.iwu.edu/cgi/viewcontent.cgi?article=1040&context=nursing_honproj About 14 million dollars of this is “wasted” on people going to the emergency room for a cold, the flu, or some other ailment that could best be treated by a primary care doctor This fact, along with the number of uninsured and/or under insured people has placed a great deal of financial pressure on hospitals and has caused the retail cost of health care to sky-rocket. Contrary to what some people have reported, emergency room care is not free. In fact, people with no insurance suffer a double whammy because they are charged the full retail price of care instead of the negotiated rate provided by an insurance plan. Finally, the number of employers who offer insurance has dropped dramatically from over 64% in 2000 to less than 53% in 2010. (http://money.cnn.com/2011/09/13/news/economy/census_bureau_health_insurance/index.htm) All the information considered together results in only one common sense conclusion. Health Insurance is a must for everyone, sick or well, young or old to balance, high risk or low risk in order to pay for healthcare costs and stop the retail costs from spiraling out of control.
Clearly, based on the evidence presented, health insurance is not a choice but rather is a necessary cost for the sole proprietor. It is important to remember that health insurance will only be available for purchase during the open enrollment period for the exchanges. The open enrollment period for 2014 will run for 6 months, from October 1, 2013 through March 30, 2014. Should an entrepreneur not purchase insurance and then get injured or a diagnosis which needs medical care after these dates, they will not be eligible to purchase insurance to cover their care until the next open enrollment period. This means they will be fully financially responsible for all costs for the balance of the year, in addition to the tax penalty. After the extended enrollment period runs out in March 2014 open enrollment will be every October through December with an effective date of the following January 1st. Remember a significant injury or diagnosis can bankrupt a person, or at the very least put a significant dent into your financial status both personally and in your business. Unless you’re a Warren Buffett or Bill Gates, you’re one illness away from financial ruin in this country,” says author Steffie Woolhandler, M.D., of the Harvard Medical School, in Cambridge, Mass.” (http://www.cnn.com/2009/HEALTH/06/05/bankruptcy.medical.bills/) It simply isn’t worth the risk.
No person in the United States, especially not sole proprietors should run the risk of not purchasing health insurance. ACA makes certain that a sole proprietorship’s most important asset is protected: the health and well-being of themselves. Sole proprietors may qualify for significant tax incentives for purchasing health insurance through the marketplace exchange. The biggest tax incentive for sole proprietors will be the potential of qualifying for an Advanced Payment Tax Credit. This tax credit may reduce a sole proprietor’s monthly premium in accordance with income thresholds set by the federal government. (http://insuremekevin.com/2013/08/13/sole-proprietor-small-group-plans-dropped-under-health-care-reform/) It is important that every sole proprietor be aware of this and other possible tax incentives. If you have any questions or would like more information on how to choose the best health care plan for your needs contact the authors.