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Unless employers provide insurance, individuals need to start shopping

robbins largeQ: I am really confused about all this new health care stuff. Are all my children (ages 27, 23 and 16) going to need to have their own insurance? Or can they still be on my policy? And am I going to be taxed on my insurance now? I am really confused by this.

A: You are not alone in your confusion! The Patient Protection and Affordable Care Act is a huge, complex piece of legislation that has been and is being implemented in stages over many years. As with most legislation, the statutory law offers the general rules, but all the details must be worked out through administrative regulation. The government has already extended the effective date, for a year, of several provisions of the act affecting businesses, and my guess is that we will continue to see delays, changes and further guidance for many years to come.

Your questions seem to center around the so-called “individual mandate” rather than the business provisions. The business rules are very involved, and I will leave those for another column, or two, or three …

Beginning Jan. 1, virtually everyone will be required to have health insurance. The insurance will need to meet certain required minimums, which in Idaho are referred to as “essential health benefits.” There are 10 general categories of coverage that must be included in all medical policies: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services. Generally Medicare, insurance through your employer or the coverage obtained via the insurance exchange, called Your Health Idaho, should qualify.

While many people will continue to be covered under their employers’ health insurance plans, those who are not covered or elect out of their employers’ plans will still need to obtain insurance by going to the exchange. The exchange is an Internet-based marketplace designed to help people obtain medical insurance. Each state has the option of running its own state-specific exchange, or just letting residents utilize an exchange run by the federal government. The Idaho legislature made the decision to run its own exchange. Open enrollment begins Oct. 1, and you can go to yourhealthidaho.org to learn more.

Once you have coverage, the government is happy. But if you do not obtain insurance, you will be assessed a penalty (called the “shared responsibility payment”) unless one of a few exceptions apply. The exceptions include (but are not limited to) opting out for religious reasons, being a member of a federally recognized American Indian tribe, or if your required insurance cost exceeds 8 percent of your household income. There is also a tax credit, called the advance premium tax credit, designed to help offset the cost of medical insurance for people with lower incomes.

The penalty for not having medical insurance is the greater of $95 per person or 1 percent of your taxable income in 2014, increasing to $325 per person or 2 percent of your taxable income in 2015, then $695 per person or 2.5 percent of your taxable income in 2016 and after. But children are half price, and the total household penalty is capped at three times the number of people in the household, regardless of the actual household size. The penalty may be far less than the cost of insurance, and some may opt to just pay the penalty rather than purchasing the coverage. The penalty is to be reported on your individual tax return; consequently the IRS is the collection agent for the penalty.

So the bottom line is: Yes, all of your children need to have medical insurance or face paying a penalty. Your two younger children can be included on your family medical plan offered by your employer, since the Affordable Care Act requires that children younger than 27 be eligible for coverage under an employer plan. Your 27-year-old will need to go to the exchange or find coverage elsewhere. The monthly premium payment is sure to be a shock for many young people who are in excellent health and have not previously had insurance. But if a medical emergency arises, they will be glad they have it.

Stay tuned for much more!

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To ensure compliance imposed by IRS Circular 230, any U.S. federal tax advice contained in this article is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed by governmental tax authorities. The answers in this column are meant to offer general information. You should consult your tax adviser regarding the specifics of your situation.

Peter Robbins is a partner in the Boise office of CliftonLarsonAllen, LLP specializing in tax matters for small businesses, individuals, and trusts and estates.

Have a question for Robbins? Email your question to news@idahobusinessreview.com. Enter “Talking Tax” in the subject line.

About Peter G. Robbins, CPA