Love it or hate it, the Affordable Care Act served as the biggest healthcare overhaul in the United States in decades. And it has met some of its goals: Protections for people with pre-existing conditions are stronger than ever, and more than 8 million people are enrolled in ACA health insurance for 2021.
That number is likely to go up with the Biden administration’s recent decision to restart open enrollment. The special open enrollment period is slated to last for several months and intended to help those who have lost coverage recently as a result of the pandemic.
But few entrepreneurs are beating a path to the health insurance marketplace.
The fall of the individual mandate, which required Americans to hold health insurance or pay a fee on tax day, has given those with no immediate healthcare needs broad leeway to look at options outside the federal marketplace. Many entrepreneurs have concluded the best solution for them lies elsewhere.
More Than A Decade On, Americans Remain Deeply Confused About Health Insurance
The ACA health insurance marketplace was intended to simplify a complex subject. By distilling down the various health insurance policies into “metal tiers,” clear distinctions could be made about what coverage an individual should expect. But the reality has been different.
Ask the average person and you’ll find it’s just as difficult as ever to understand health insurance.
Even the most savvy consumer runs a risk of failing to choose the right health insurance for them. Even if they correctly anticipate their healthcare needs for a coming year, they could still find they are not fully covered for procedures their primary care physician deems necessary.
Years after ACA, health insurance remains an impenetrable labyrinth of buzzwords, with different providers having different definitions and expectations. And thanks to the health insurance marketplace structure, it is impossible to change or update a policy outside of a special qualifying event.
If you discover your health insurance simply does not work for you, you are out of luck.
As disturbing as that is, it is not even the main reason so many successful business owners have been moving away from ACA health insurance. While entrepreneurs of all ages are just as concerned about their health as other Americans, many have decided the ACA is not worth the trouble.
The reason comes down to how ACA health insurance coverage is implemented.
What’s Driving Entrepreneurs Away From ACA Health Insurance?
Although health insurance is now more accessible than ever, it has not really become more affordable.
Prices vary by state, but representative “lowest-cost unsubsidized plan” premiums in 2021 ranged from over $300 to over $500 per month depending on the level of coverage chosen.
Many Americans would be surprised at these figures because they are paying a subsidized amount through the Advance Premium Tax Credit (APTC). The APTC is a means-based tax credit applied in advance in the form of direct financial help that lowers the monthly cost of ACA health insurance.
This money is paid directly to the insurer “behind the scenes.” The amount the policyholder actually pays each month is the subsidized figure, and it is often difficult to untangle precisely how much subsidy one gets. But if you receive “too much” in APTC, you are expected to pay it back all at once come tax time.
For entrepreneurs, this represents a potential crisis.
If your income varies according to the success of your business, you can easily find yourself paying back 100% of the APTC amount you received during the year through no fault of your own. Avoiding this outcome – and the serious liabilities that follow – already requires a head-spinning level of tax savvy.
For 2020, subsidy eligibility cut-offs were:
- Maximum earnings of $49,960 for a single person
- Maximum earnings of $67,640 for a married couple
- Maximum earnings of $103,000 for a family of four
These limits are determined with reference to the federal poverty level (FPL), which is recalculated every year. Standards are broadly consistent across the states, except in the case of California, where residents can make up to 600% of the FPL and still qualify for a subsidy. Figures above represent 400% of the FPL.
These guidelines raise serious problems with ACA health insurance:
1. Limits Are A Back Door Exclusion For Entrepreneurs
Even in California, where the cut-offs are most generous, you would hardly be making a dent in the cost of living in many areas if you were not far exceeding the subsidy income limit. In effect, entrepreneurs are not eligible for APTC financial assistance or are a single profitable month away from losing that eligibility retroactively.
2. Most 1099 Contractors Cannot Predict Their Income Precisely in Advance
Contractors have a high degree of income variability based on market conditions. Any number of factors can contribute to an up or down quarter. As it is not possible to predict these things in advance, contractors must “low-ball” their income to avoid paying penalties. This results in less subsidy than what one really qualifies for.
3. ACA Health Insurance Does Not Necessarily Meet Specific Needs
One of the primary goals of the ACA health insurance strategy is to get as many people as possible into the marketplace. But this means policyholders who have few or no pre-existing conditions may end up overpaying for a standardized plan that provides more of what they don’t need and less of what they might actually require.
The end result? Even with the best of intentions, many entrepreneurs, business owners, and independent contractors have found that they simply cannot trust the ACA health insurance system. Through no fault of their own, they can easily end up paying back thousands in APTC simply for doing their job.
Of course, those in the business community are not just turning away from healthcare. It is an open secret that the lapse in the individual mandate has given small business owners who work independently more time to formulate a long-term plan that includes health insurance options outside the ACA’s purview.
But with rumors of the mandate’s return, time may be almost up.
The Individual Mandate May Be Coming Back: What Entrepreneurs Should Do To Prepare
The Biden administration has made strengthening the ACA a cornerstone of its plans. For many policy experts, that means expanding the number of healthy people who participate in the system to defray care expenses for those with costly conditions. In short: Reviving the individual mandate to increase enrollment.
If the individual mandate is restored, it will mean that not holding health insurance is no longer an option. Those who choose to do so will end up paying fines that may be a significant percentage of their total earnings.
The time is now to plan for the future – tailoring coverage to your needs while minimizing liabilities. Luckily, there are ACA healthcare alternatives that really work. Thousands of entrepreneurs are already using them.
To find out more about ACA alternative options, contact us today.