Andy Friedman on How to Handle Health Care Reform

President Barack Obama’s health care reform law, which takes effect Jan. 1, 2014, does not include a new government-run health plan–as most Americans erroneously believe–rather it seeks to ensure that virtually every American has health care coverage, and businesses and individuals have decisions to make, says analyst Andy Friedman of The Washington Update in his latest white paper, “Health Care Reform Takes Effect: What Choices do Businesses and Individuals Have?”

The latest research by the Congressional Budget Office estimates that the ACA will shrink the number of uninsureds by about half, from 60 million to 30 million, Friedman notes.

This reduction, he says, “will come at a cost to both the government and to affluent Americans,” as “a portion of the cost is funded by a new 3.8% tax on investment income received by families with adjusted gross income above $250,000.” The remaining cost “must be recouped through spending cuts–the law seeks to implement cuts in Medicare reimbursement amounts–additional taxes, or new government borrowing.”

In his paper, Friedman warns that, first and foremost, the Affordable Care Act–commonly referred to as Obamacare–is “complex,” and that businesses and individuals should consult with a financial advisor or qualified attorney to determine how the law impacts their specific circumstances.

But Friedman says that while the health care reform law is “massive,” at its core are five major initiatives that seek to ensure Americans have health care coverage:

Friedman notes that whether the mandates work to ensure that Americans have health insurance “will depend on the extent to which employers and individuals comply.”

For example, he says, an employer can avoid the mandate in three ways:

Because time is of the essence, Friedman says that businesses must decide whether to provide employee insurance coverage in 2014, and, if so, whether also to provide family coverage.

Businesses, he says, “should also consider whether to scale back (or not increase) number of employees or hours for part time employees before the employer mandate becomes enforceable in 2015.”

For individuals, Freidman says that those who are not eligible to receive coverage from employers or under Medicare or Medicaid must decide by Jan. 1 whether to purchase coverage on the exchanges (perhaps with benefit of a subsidy) or allow the IRS to reduce tax refunds they would otherwise receive by the amount of the penalty for failing to do so.

“But young and healthy workers might choose to pay the penalty rather than purchase insurance,” he adds, as the maximum penalty is $2085 per family or 2.5% of taxable income, whichever is greater.”

Moreover, he says, “the IRS, which is charged with collecting the penalty, can do so only by a reducing a tax refund otherwise due. Thus, the penalty cannot be collected from people who pay no income tax (or who do not overpay their tax through estimated payments).”