How Do the Health Reform Law’s Financial Incentives and Disincentives Work?

Even as Republicans are trying to shut off funding for the law, the Obama administration and some states are preparing for implementation of the Affordable Care Act. Julie Rovner of NPR joins Ray Suarez to answer some of your frequently asked questions on tax credits and subsidies, as well as penalties for not having insurance.

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    And we return to the subject of health care reform.

    Even as Republicans are trying to shut off funding for the law, the Obama administration and some states are preparing for a pivotal new phase to take effect in October. That's when new exchanges, or online insurance marketplaces, are set to open.

    We have been trying to answer your frequently asked questions all week.

    And Ray Suarez leads the way again tonight.


    We have spent some time laying out some of the basics of the exchanges and the premiums consumers might payment, but we're also getting a number of questions on other related financial issues, such as tax credits, taxes, and penalties still to come.

    And that's our focus tonight.

    And, once again, Julie Rovner of NPR joins us.

    And, Julie, to get people to do things and not do things, there are all kinds of incentives and disincentives baked into the law. What about these subsidies and tax credits? How do they work?

  • JULIE ROVNER, National Public Radio:

    Well, the idea, of course, is that if you are going to require people to have insurance, then you want to make it affordable.

    So there are subsidies for people between 100 percent of poverty and 400 percent of poverty. Now, for an individual, that is about $11,000 to about $45,000 a year of income. For a family of four, it's about $23,000, all the way up to about $92,000 of income.

    Now, one of the questions that I have gotten a lot are, do we have to wait until the end of the year to get these tax credits? And the answer is no. If you qualify for the credits, you will be able to get them monthly, so it will help immediately offset the cost of that insurance.


    And in a country with a median family income in the low $50,000 range, that captures most American families, that 400 percent of poverty, doesn't it?


    Yes. Many of the people who go to the exchanges who don't have insurance will be able to get some kind of a subsidy, some kind of help to help them pay for insurance. In many cases, it will be possibly almost equivalent to what they would get if they had help coming from an employer. That's the idea.


    All week, we have been fielding questions from people who have asked us about things they still don't understand that's in the law. Let's take a listen.

  • MICHELE TORO, Florida:

    I'm Michele Toro from Pembroke Pines, Florida.

    And my question is, how will the tax credits affect those uninsured?


    Is this different if you are not working right now?


    No. Basically, it's the same.

    If you go to the exchange, if you are uninsured or if you buy your own insurance — again, it's important to remember that the exchanges are not really for people who have insurance at their jobs. It's for people who are in what we call the individual market, people who buy their insurance on their own without the help of an employer, or people who are uninsured who don't have insurance, don't have access to employer-provided insurance.

    And, again, all of those people who go to the exchange will be eligible for these subsidies, these tax credits if they are between 100 percent of poverty and 400 percent of poverty, their income.


    We have also been getting questions online. One comes from Bob S., who writes: "You say you're going to explain Obamacare. Explain Title 9 of Obamacare. Title 9 is the revenue section. It contains 23 new taxes. What is Obamacare going to cost us tax-wise?"


    Well, the short answer is that when Obamacare passed, it was estimated to cost about a trillion dollars over 10 years.

    And everybody agreed that it wouldn't add to the deficit. So indeed there are a lot of taxes to pay for it. And these taxes basically were tried — they tried to spread them as widely as they could so everybody would have to pay a little bit. There are a number of new tax on people who are wealthier, who earn more than $200,000 as an individual or $250,000 as a couple.

    There is an increase in their Medicare payroll tax. There's increases in taxes on their unearned income. There are also increases in things like there is a 10 percent tax on indoor tanning services. That's to deter people from doing that. It's considered relatively dangerous, encourages — possibly could lead to skin cancer. There are also taxes on many pieces of the health care system.

    There is a new tax on medical device manufacturers, on health insurers themselves, on pharmaceutical manufacturers. I might add that all of them are complaining and would like to see those taxes either reduced or taken away.


    But, again, that trillion dollars is over the course of the first decade of the law.


    Yes, it is.


    We got a question involving the mandates, because that was one of the most controversial parts of this law, that you would be required to enter the insurance market. Let's take a look.

  • KEVIN BROWN, Iowa:

    I'm Kevin Brown. I'm from Primghar, Iowa.

    And I have got a friend that's uninsured. And I guess I'm just kind of worried what is going to happen with the premiums and how the fines work, really.


    Do we know yet how the fines are going to work, how they are going to be levied, how high they are going to be?


    Yes, we have known this from the beginning, but also a source of great confusion. The first year, if you are — if you don't have insurance, at tax time in 2015 — this is if you don't have insurance in 2014 — the fine is $95 or 1 percent of your taxable income, whichever is greater. That fine goes up over several years. Eventually, it becomes $695 or 2.5 percent of your income.

    Now, there are a lot of people who won't be subject to the fine if they don't have insurance, for instance, if you don't make enough money to have to file federal income taxes. That's about $10,000 for an individual, about $20,000 for a couple. Those people are exempt from the requirement to have insurance.

    There are also certain people. If you are not here legally, you are obviously exempt from it. If you are a member of certain religious orders, you are exempt from the mandate. If buying the lowest-cost insurance that is available would cost more than 8 percent of your gross income, you are also exempt from that.

    So those people wouldn't have to purchase insurance and therefore wouldn't have to pay the fine.


    When you are designing a fine, it has to be high enough to hurt and not so low that the person would say, oh, then I will gladly pay the fine instead. How did they negotiate that sweet spot?


    Well, there's a concern from the insurance industry that, indeed, this fine is not big enough, that a lot of people will simply pay the fine, rather than purchase insurance.

    But there's also — you know, one of the goals of this law is to make insurance more affordable, that people will want insurance, and that they will go out and buy insurance because insurance — they will think insurance is a good and important thing to have. Remember, if you pay the fine, yes, you're not going to pay that much, but you're also not going have health insurance.


    Julie Rovner of NPR, thanks again.


    Thank you.