Ask Cheasty: Will I have to buy insurance if I don't earn much?
Dear Cheasty,Can you clarify what the “8% rule” means? I’ve heard that it has to do with whether you pay a tax if you don’t buy health insurance, but I’m not sure how it works.
Studying Up on Health Reform in San Antonio
Dear Studying Up,
No problem! I’d be happy to help. The 8% rule you’re talking about is part of the Individual Responsibility Provision (aka the “individual mandate”).
The Affordable Care Act is called just that – AFFORDABLE – because not only is it trying to make sure we get close to universal health coverage in this country, but it’s also trying to make sure that people can afford the cost of health care.
So the health reform law has this 8% rule. Let’s say it is 2014, and you are uninsured, but employed. You go to the Health Insurance Exchange and look up what plans are available and what subsidies you qualify for. Keep in mind that there are different cost-sharing structures at different levels of coverage – for example, you can buy a platinum plan that covers 90% of your health care costs, gold (80%), silver (70%) or a bronze level plan that only covers 60% of your health care costs.
The way the 8% rule works is this: if the cheapest BRONZE LEVEL plan option would cost more than 8% of your annual household income (i.e. the amount on your tax returns), IF YOU DO NOT PURCHASE HEALTH INSURANCE you are exempt from paying the tax.
Here’s an over-simplified imaginary scenario to help explain it: let's say you bring home $3000 a month, and your employer doesn't provide insurance. The cheapest insurance you can find costs $300/month. This is 10% of what you are earning. If you choose not to buy health insurance, you aren't subject to a tax. If you choose to buy it, you will qualify for subsidized prices on the Exchange.
Now let's say that you earn $3000 a month and you've found a policy that costs $200/month. This is less than 8% of your income. If you do not purchase that insurance, you will have to pay a tax (called the Individual Responsibility Provision) to the federal government. That tax will be considerably less than the cost of insurance (it will be either $700 or 2.5% of your income, whichever is higher), but the goal is that it will act as a deterrent for people to opt out of health insurance. After all, why pay something for nothing, when you could pay a little more and get health insurance?
I hope that clarifies the question of the 8% rule for you, Studying Up. If you have more questions, or need clarification, just ask!
To a Well and Healthy Texas,
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