5 Things You Must Know About Affordable Care Act Plans

Affordable Care Act Plans Eliminate Rejection for Preexisting Conditions

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If you’ve thought about early retirement but think you can't leave your current employer for fear of losing health insurance coverage, or you are sticking with a job you don’t like because you have pre-existing conditions – you don't have to worry about these things anymore. You are guaranteed health coverage with the Affordable Care Act and you will not be charged extra for pre-existing conditions.

Here are five things you need to know about how the Affordable Care Act and how the new health insurance exchanges will affect your pre-age 65 health insurance options.

1. Health Insurance Must Be Offered to All

Starting January 1, 2014, health insurance must be offered to all, regardless of pre-existing medical conditions. As Michael Kitces states in How Coming Health Insurance Exchanges Will Drastically Impact Career and Retirement Decisions,

“Now, those who want to stop working can do so and be assured of health insurance coverage that is priced substantively the same as what they already had while working (although premiums may still rise with age), with the exact same availability of benefits and no worry of limitations due to pre-existing conditions or future health changes.”

You’ll be eligible because coverage is mandatory and premiums can only be affected by these four things:

  • Your age
  • Number of people in your family
  • Tobacco use
  • Adjustment for your geographic area

Diabetes, heart condition, cancer? Nope, they can’t rule you out, they can't exclude coverage for these conditions, and they can't increase your premium because of pre-existing conditions. This is great news for many people who are still working because they have to in order to maintain health insurance coverage.

2. Health Exchange Premiums Are Affordable

The preliminary numbers show health exchange insurance premiums are turning out to be more affordable than what the doomsdayers of the past few years may have led you to believe.

I give credit to Forbes contributor Rick Ungar for saying “It is increasingly clear that I had it wrong.” He is referring to the surprisingly affordable new health exchange premium amounts published by the state of California.

Costs vary by location and type of plan you choose. You can choose plans with lower or higher deductibles. To calculate your maximum potential cost for the year add up your monthly premiums for the year plus the out-of-pocket maximum that is listed. In a year with bad health that would be the most you would end up paying. In a year with no health care needs you would only pay the monthly premiums.

3. Open Enrollment Occurs Each Year

Open enrollment begins each fall. However, if you lose your employer health coverage mid-year you may be eligible for a special enrollment period.

Here’s what you need to do.

  • Visit healthcare.gov
  • If you are looking for mid-year coverage you'll see an option to click to see if you are eligible for the special enrollment period.
  • If you want to check out pricing, click the round blue circle that says "See plans and prices." This will enable you to get an estimate of pricing before going through the full application process.

Should you shop even if you already have coverage? Yes. As this Kiplinger article Health Insurance Exchanges Gear Up for Action, states,

“Workers and early retirees offered only skimpy employer plans can shop for their own coverage on the exchanges.”

You don’t know what options you might find until you look.

4. Tax Penalty Applies if You Go Uninsured

There will be a tax penalty for not purchasing health insurance. It starts at $95 per individual or 1 percent of household income, whichever is greater. 

Critics have complained that the penalty is not high enough. They say it is cheaper to pay the penalty than buy insurance. That may be true, but I don’t believe most people really want to go uninsured. Rather than pay a penalty it will be better to apply that money toward valued insurance coverage that may save you money and will certainly make you feel more secure.

5. Tax Credits Offered for Low Income Households

There is a tax credit or subsidy available for those who can’t afford health insurance premiums. This tax credit will be available for singles and families with Modified Adjusted Gross Income (MAGI) below 400% of the poverty line. In 2015, you are under 400% of the poverty line if your MAGI is less than $46,680 for singles and $95,400 for a family of four.

With proper tax planning, some early retirees may be able to keep their MAGI low enough to qualify for credits for a few years prior to reaching Medicare age.

In addition to tax credits, many states will be expanding their Medicare programs which will affect individuals under 65 with income at or below 138% of the poverty level (about $21,983 in 2015 for a family of two).

Bottom line: Due to the new health insurance exchanges early retirement options just got better for many Americans. If you're near 65, Medicare will be your primary health plan and the new health exchanges will have little effect on your post 65 options.