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Unemployed: What the Affordable Care Act Means For You

Unemployed: What the Affordable Care Act Means For You - TaxACT

Have you been struggling with access to health insurance since losing your job?

Are you concerned that your COBRA coverage may run out soon? Daunted by the cost of obtaining a continued health insurance policy under HIPAA?

Fear not – with the rollout of the new health insurance exchanges, or marketplaces, under the Affordable Care Act, you now have guaranteed access to health insurance, regardless of health conditions or being unemployed, and may even be eligible for government tax credits to help afford the cost of insurance.

The current open enrollment for health insurance via the new online health insurance exchanges (think: a website marketplace for comparing policies and buying health insurance) started on October 1st, and continues through March 31st (those who purchase by December 15th will have coverage that takes effect on January 1st).

The next open enrollment period will be October 1st through December 14, 2014.

The key change in purchasing health insurance via an exchange

Unlike the prior world of individual health insurance, the Affordable Care Act requires health insurance offered through the exchanges to be available regardless of health conditions.

Insurance coverage cannot be denied for health conditions, limited due to pre-existing conditions, or cancelled in the future due to a change in health.

Instead, everyone is required to have access to the same insurance policies – regardless of their actual health – and prices can be changed based only upon these factors:

  • Age;
  • Family size (higher cost to cover more people);
  • Geographic region (prices are adjusted for cost-of-living and cost-of-care in the area); and
  • Tobacco use (smokers can be charged more, if the state chooses to allow it).

Quality of health insurance coverage

Quality of coverage will vary depending on the type of plan purchased, and the Affordable Care Act defines four basic types of coverage: “Bronze” plans (that actuarially cover an average of 60% of health care costs), to Silver plans (70% of costs), Gold plans (80% of costs), and Platinum plans (90% of costs).

For those under age 30, or those for whom coverage would cost more than 8% of their income, an additional “catastrophic” coverage type is available, with lower coverage levels but also lower premiums.

These new health insurance rules mean that even those who are unemployed and have no access to health insurance through an employer are able to get coverage, regardless of the fact that they are unemployed, and even if they have health conditions.

The Premium Assistance Tax Credit

Furthermore, if they earn at least an amount equal to the Federal Poverty Level – currently $11,490 for an individual, $15,510 for a married couple, or $23,550 for a family of four – they may be eligible for the Premium Assistance Tax Credit, which applies to incomes as high as $45,960 for individuals, $62,040 for married couples, and $94,200 for a family of four (these thresholds are indexed annually for inflation and will be slightly higher in 2014).

Those whose income is below certain thresholds may be eligible for health insurance through Medicaid, though eligibility varies by state.

To estimate the amount of premium tax credit you would be eligible for, you can check out the Credit Calculator Estimation Tool on HealthcareACT.com, or to get a more specific quote based on your exact income and circumstances, including the cost of health insurance in your state, go through the sign-up process at Healthcare.gov to see what your cost of health insurance would be.

If your income is lower for the year – due in part to unemployment itself – you may find yourself eligible for a very significant credit.

And notably, unlike many other tax credits, the premium assistance tax credit is not merely claimed when you file your tax return at the end of the year. Instead, it’s actually advanced to your health insurance company to help pay for your premiums if you purchase through the marketplace.

For instance, if your premium tax credit was $200 per month ($2,400 per year) and your insurance cost $300 per month, you will simply pay the difference – $100 per month – for your health insurance in the first place.

However, if it turns out you were credited too much or too little of the credit throughout the year, any over- or under-payments will be reconciled when you file your tax return. This means you may need to pay some of the tax credit back if your income turns out to be higher because you get a job later in the year ( while finding a job is great news, it may increases your marginal tax rate a bit as you begin to earn income and thus phase out your premium tax credit).

The bottom line is simply this: thanks to the Affordable Care Act, you are now able to get health insurance, even if you are unemployed, with a premium tax credit to help cover the cost of insurance (and the credit may be higher while income is low due to unemployment itself).

Are you unemployed and struggling with a lack of health insurance? Does the new guaranteed access to health insurance mean you’re now able to get coverage for the first time?

About Michael Kitces

Michael Kitces is a Partner and the Director of Research for Pinnacle Advisory Group, and publisher of the financial planning industry blog Nerd’s Eye View. You can follow him on Twitter at @MichaelKitces, or connect with him on Google+.