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Health insurance basics

You're not alone if you're struggling to understand all the ins and outs of health insurance today.

Since passage of the landmark Patient Protection and Affordable Care Act in March 2010, the health insurance market has undergone its biggest transformation in decades. Not since Medicare was launched in 1965 have we seen so many changes.

Now most Americans must have health insurance or pay a tax penalty, and health insurers have to follow a slew of new rules. Health plans that count as “sufficient” coverage must provide a comprehensive set of benefits, and health insurers can't charge higher premiums or deny coverage for folks with health conditions. That means you can buy a new health plan even if you're pregnant or have a chronic condition like diabetes.

Worried about cost? You might qualify for premium discounts in the form of tax credits or subsidies to lower deductibles and other out-of-pocket costs if you have a low or moderate income.

How to get covered

You can get covered and avoid a tax penalty in a variety of ways, including through:

  • An employer-sponsored health plan at work.
  • A spouse's employer-sponsored plan.
  • A parent's employer-sponsored plan, if you're under age 26.
  • An individual health plan that you purchase. Individual health coverage can also cover your spouse and children.
  • COBRA continuation coverage. COBRA is short for the Consolidated Omnibus Budget Reconciliation Act, and it gives people the right to continue coverage through a work-based group plan after a job loss, death of a spouse, divorce or loss of eligibility for dependent coverage. COBRA has been around since the 1980s.
  • A government health plan, such as Medicaid or Medicare, if you qualify. Medicaid is the state and federal insurance program for low-income individuals and families. Medicare is for people age 65 and older and for young people with certain disabilities. In addition, the Children’s Health Insurance Program (CHIP) insures kids from low-income families.

health insurance explainedSince 2016, employers with at least 50 employees must provide health benefits to 95 percent of their full-time workers (those who work over 30 hours per week) or pay a penalty.  Coverage needs to be offered to workers and their dependents, but doesn't have to be offered to spouses.

If you don't have access to health insurance through an employer or through a government program, then you'll need to buy health insurance coverage.

When to buy

Along with so many other details, when and how you purchase health insurance has changed. Before 2014, you could buy an individual health plan at any time of year. Now, you must purchase health insurance during the annual open enrollment period. The open enrollment period for 2018 health plans begins Nov. 1, 2017 and ends Dec. 15, 2017.

In 2018, the federal government's current rule changes the open enrollment period from 3 months (around 90 days), as it was the last two year, to a mere 45 days. However, some states are extending the time that people have to buy health insurance. Currently, those states are:

  • California – Nov. 1 to Jan. 31
  • Colorado – Nov. 1 to Jan. 12
  • D.C. – Nov. 1 to Jan. 31
  • Massachusetts – Nov. 1 to Jan. 31
  • Minnesota – Nov. 1 to Jan. 14
  • Washington – Nov. 1 to Jan. 15

If you buy after the Dec. 15 date in the states that are extending the enrollment period, you'll need to check to see when the coverage will start as most still require you to obtain your plan by Dec. 15 for it to start on Jan. 1, 2018.

What happens if you miss the deadline? Unless you have a special circumstance, you have to wait for next year's open enrollment period.

The special circumstances that qualify you to sign up outside the open enrollment period are known as a "qualifying life events." Such events include getting married, losing health insurance coverage, having or adopting a child, moving to an area with different health plans, or a household change that affects whether you qualify for financial help to purchase coverage.

You can buy a health plan through an insurance agent, directly from an insurance company or an insurance website, or through your state’s health insurance marketplace (aka exchange). But if you think you might qualify for government assistance, you should start your search at the health insurance marketplace for your state.

You could qualify for premium discounts in the form of tax credits if your household income falls below 400 percent of the federal poverty line (FPL). That is $98,400 for a family of four and $48,240 for an individual in 2017. These thresholds may be slightly higher next year. You may be eligible for a tax credit to reimburse you for your deductibles and other out-of-pocket costs if your income falls below 250 percent of the federal poverty line -- $61,500 for a family of four and $30,150 for a single person in 2017. (The government uses FPL standards from the previous year to determine eligibility). 

Bear in mind you can't get the discount or subsidy if you have access to affordable employer-sponsored coverage. And you must go through the marketplace to get the discount or subsidy.

Shopping the health insurance marketplace

The online health insurance marketplaces, also known as exchanges, open in November.

Some states run their own marketplaces; the federal government runs the marketplaces for other states through its HealthCare.gov site. Go to HealthCare.gov to find a link to your state’s marketplace, or call 1-800-318-2596 for information.

Through your state marketplace, you can apply for financial help, compare health plans available in your area and purchase a plan. Although operated by the government, the marketplaces sell private health insurance plans. You can also see if you're eligible for Medicaid or the Children's Health Insurance Program.

Health plans fall into four categories to make them easier to compare. The categories vary according to how much the insurer pays and how much you pay out of pocket for deductibles, copayments and coinsurance.

  • Bronze: You pay 40 percent of your costs on average; the insurer pays 60 percent.
  • Silver: You pay 30 percent; the insurer pays 70 percent.
  • Gold: You pay 20 percent; the insurer pays 80 percent.
  • Platinum: You pay 10 percent; the insurer pays 90 percent.

Catastrophic plans, which have higher deductibles than other plans, are available only for people under age 30 and for those who have a financial hardship.

Health insurance consultants, called navigators, can help you apply for coverage in the marketplace. But they can't tell you which plan to pick -- that's up to you. Assess your health care needs, consider your budget and compare the costs, benefits and provider networks offered by each plan.

If you don't qualify for discounts or subsidies in the marketplace, then compare health plans outside the marketplace as well. Some major insurers are not selling plans through the government-run marketplaces. Instead, they're marketing directly to consumers or through health insurance agents.

Most health plans sold outside the marketplaces meet the government's requirements for having coverage. However, insurance plans that cover only certain diseases, such as cancer insurance, and temporary or short-term health plans, do not count as sufficient coverage under the health care reform law. Those plans don't provide a full range of benefits, and they can deny coverage to people with health conditions.

Penalty for going without health insurance

The penalty for not having health insurance is calculated two different ways -- per person and as a percentage of your household income.  You pay whichever amount is higher.  Thus, if you went without coverage in 2017, you'll face a tax penalty of 2.5 percent of your income, with a maximum amount equal to the total yearly premium for the national average price of a Bronze plan sold through the Marketplace. 

The per person penalty amount is $695 per adult.  For children under the age of 18, it is half that amount, $347.50, per child. The maximum due is $2,085. You pay the fee when you file your federal tax return for the year you didn't have health insurance coverage.  This is referred to as your "individual responsibility payment." You can receive an estimate of how much you will owe, if uninsured, on the IRS website.

However, you don't have to pay the penalty if you're uninsured for less than three months of the year (under a "short gap" exemption) or if the lowest-priced coverage available would cost more than 8 percent of your household income. You are also exempt from a penalty if:

  • You are a member of a federally recognized tribe.
  • You belong to a recognized religious sect with religious objects to insurance.
  • You are in jail.
  • You are not "lawfully present" in the United States. (For example, someone who came to the U.S. on a travel visa that has since expired.)
  • You have experienced a hardship, such as filing bankruptcy in the last six months or experiencing the death of a close family member. A full list is available on the HealthCare.gov website.

If you can't afford insurance, check whether you are eligible for Medicaid or the Children's Health Insurance Program. You can apply for coverage through these federal and state programs at any time of year -- not just during open enrollment.

Eligible for Medicare? Go to Medicare.gov to learn how to enroll. Each year Medicare has its own open enrollment period in the late fall when you can change plans. The open enrollment period for health plans for people under age 65 does not apply to Medicare beneficiaries.

You cannot buy Medicare health or prescription drug plans through the new marketplaces.

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