What are the impacts of the ACA?

The next question I received could take me years of blogs to explain, which makes sense since it is about a piece of legislation that is longer than the novel War and Peace. The question is “what are the impacts of the Affordable Care Act?” There are hundreds of impacts, but I am going to focus on two; one that affects individuals and is very misunderstood and one that affects companies and is not really discussed.

The individual mandate to buy insurance is well known, but the tax (that is what the Supreme Court said it was and who am I to argue) for not buying insurance is very misunderstood. The press and talk shows focus on the minimum payment for not buying insurance. In 2014 that will be $95. In 2015 it increases to over $325. The problem is that is where most people stop talking, but that is not what the law says. The law says that the minimum tax for not buying insurance in 2014 is the greater of $95 or 1% of an individual’s AGI. As most CPAs are good at math I assume you can easily figure out that once an individual’s AGI exceeds $9,500, they will no longer be paying $95, but instead 1% of their AGI. Most people who file and pay taxes make significantly more than $9,500. Looking at an income of $35,000 which is around the average reported, the tax would be $350. Those who want to argue that $95 is not enough of a tax to get people to pay several hundred dollars a month in premiums can probably make the same point with a $350 payment, but that is not the point. The point is that there are a lot of people out there that have not bought insurance and are thinking they will just have to pay (or receive a reduced refund of) $95 who will be negatively surprised when the bill is a lot higher next April 15. And the percentage doubles in 2015 to 2% which drives that tax to $700. People will be feeling that tax hit just as the presidential primaries are getting into full swing in 2016. That will make for some interesting political discussions.

The impact to companies is being felt by employees all over the country right now, but they may not have realized it. All self-insured companies have to pay a $63 per “covered life” (if the company covers their employee, spouse and 2 children, they have to pay 4*$63 or $252). The fee is called the “transitional reinsurance fee” and is over $5 per month per covered life. So if you are single and your monthly contributions went up this year, $5 of that increase is going straight to the government as a stealth tax on you. If you cover your family of 4 then it is over $20 a month. If you are thinking, well only big companies are self-insured and they can afford it, you are wrong; not on the “afford it” part which can be debated, but because all insurance companies must pay the fee too. If you think the insurance companies will just eat the cost you don’t understand how they work. Insurance companies raised their premium rates to cover the fee, so that increase in your contributions driven by higher insurance premiums is, at least in part, going straight to the government. The problem is this fee really hasn’t been talked about so everyone just assumes it is the big companies and insurers sticking it to the little guy when it is really your friend and ally, the Federal government.

That is all I have space to talk about for now, but if there is a specific part of the Affordable Care Act you would like me to discuss, just send your question into Ask Bill and I will try to address it.

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