Lately, the Patient Protection and Affordable Care Act a.k.a "Obamacare" has been an unavoidable topic. It's covered extensively by the media and is given extra consideration because of the recent election as well as the Supreme Court's ruling on June 28th, 2012 to uphold the law. But how will it affect our personal finances?
According to a summary of the new health care act, 94 percent of Americans will be covered. This is in comparison to the fact that 18.4 percent of Americans younger than 65 didn't have insurance in 2010 according to CNN. The Act is sure to provide coverage where none is available or affordable to the majority of those currently without insurance.
This legislation has a threefold strategy:
1. Elimination of preexisting conditions.
2. Americans must take part (with all but a few exceptions). It's thought that this will bring down costs because more healthy people (as well as unhealthy people) will be in the pool.
3. Tax-credits will make coverage affordable for those who currently can't make payments.
The Act was passed in 2010 and according to this timeline implementation will continue until completion on January 1, 2015.
Out-of-pocket requirements will be in line with Health Savings Accounts (effective 2014): HSA's can be used like an emergency fund for qualifying health care expenses, and they also have tax and other advantages. Ideally, the amount you deposit in the account will at least cover your deductible.
Children will be considered dependent until age 26 (currently in effect): This way a 24-year-old adult child can be covered under their parents' insurance. Young adults have an additional option for coverage when they're getting started. If you can't get coverage elsewhere, this stipulation insures that if a major medical expense does arise, it won't put you at a deficit when you're trying to forge your financial future.
Elimination of unreasonable benefit limits (partially in effect, full implementation 2014): Annual and lifetime coverage limits will be raised. This can have a profound impact on your finances if you have a serious medical issue that is extremely expensive. In other words, you'd be less likely to have to spend-down assets on medical expenses in a worst case scenario.
Straightforward comparisons of insurance policies will be made readily available (currently in effect): This should help you choose coverage with greater clarity and help you find an insurance plan that provides the best value for your unique medical and financial circumstances.
There will be fewer costs for basic preventative care (currently in effect): Services would include an annual doctor visit and a "personalized prevention plan" for seniors who qualify.
Keep your current insurance (currently in effect): If you like the coverage you have in place, you can "grandfather" it and continue its use without any penalty.
Long-term care insurance (effective October 2012): Voluntary long-term care insurance will be provided under the act called the "community living assistance services and support (CLASS program)." It will be interesting to see how competitive (in terms of costs and benefits) it will be in comparison to private offerings of long-term care coverage.
Nursing School (partially in effect, full implementation 2014): Federal student loans for primary care and nursing school will be made more accessible and appealing.
What are the penalties if you don't pay?
Most Americans will be required to hold nominal health insurance coverage or pay a fine of $95. That figure will rise quickly over the next two years to $350 in 2015 and $750 in 2016. However, there are some exceptions for religion and low income where you won't be required to pay the penalty.
From my perspective as a certified financial planner, you need health insurance coverage whether or not the law requires it. Managing risk is an important element of improving your finances. The right kind of insurance covers what you can't afford to lose. That way, if something catastrophic happens, it doesn't wipe out the assets you are accumulating. Generally, this is true for other types of insurance in addition to health insurance.
Almost certainly, there are other ways you might be affected by this legislation. For example, there will be provisions for rural communities. Also, coordination of services already offered under medicaid and medicare will be streamlined. The Patient Protection and Affordable Care Act is over 900 pages, so this post isn't a comprehensive overview. However, I hope it helps you stay informed so that you are in a better position when it comes to your personal and financial health!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.