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Opting Out of the Affordable Care Act, Does it Make Sense?

Published on Jul 31, 2013

Summary

Learn more about how the Affordable Care Act impacts individuals and small businesses. Take the appropriate steps to avoid costly penalties.

affordable care act

When the Affordable Care Act (ACA) takes full effect next year, will you purchase coverage as an individual – as the law requires – or will you skirt the federal health overhaul and pay the $100 penalty? If you’re incorporating a company, you must follow federal guidelines so as to offer all employees access to the new plan. Views regarding the sweeping federal health laws vary – some believe they’re being penalized for having good health and are paying for something they will not use, while for others these reforms are their saving grace when pertaining to health care.

‘Young Invincibles’ Predictions show that about six million people of various ages will choose to pay a fine instead of spending hundreds or thousands of dollars each year on insurance premiums under the Affordable Care Act – a major concern for insurance companies. Why is this an issue? If enough of these ‘young invincibles’ avoid the new insurance option, the equilibrium of the ACA could be thrown off, as insurers are counting on young adults to offset the higher costs they will incur for older, less healthy beneficiaries. Why Participate? Although young, healthy adults may believe they’re saving money by avoiding participation in the new insurance offering, that’s not necessarily the case. About 3 million 18-24 year olds within the U.S. currently purchase their own bare-bones health insurance. Many pay high prices, deductibles and co-pays for limited coverage because their income is too high to qualify for Medicaid and don’t have health care coverage from their parents or employers. Under the ACA, the majority of adults in their 20s will qualify for government subsidies and all plans will be required to offer a minimum set of benefits – which raises price – but also increases coverage and benefits for everyone. Premium Hikes a Disincentive Here’s the catch: for individuals aged 21-29 who aren't eligible for government subsidies, premiums could increase by as much as 42%, whereas an adult in his or her 60s will see a 1% increase. There’s an obvious disadvantage for the nation’s younger population, and as a result penalties to opt out of the program may jump to 2.5% of taxable income or $695 – whichever is more – by 2016 to prevent non-participation. It’s a bit of a waiting game – premiums will vary depending on where you live and your age. ACA Within Businesses There’s no denying the new ObamaCare law will change your relationship with your health care insurance provider. As a business owner, if you own an incorporation, it’ll change your relationship with your employees as well. For example, there’s the Employer Shared Responsibility Mandate, which states as an owner of an incorporated company of 50 or more full-time employees, you’ll be penalized in 2015 if you don’t yet offer employees health care coverage that meets ACA standards. Whether your employees choose to opt out or participate in the Affordable Care Act is ultimately their decision, although you can set standards that help ensure they remain enrolled. If employees will have to contribute to the cost of the insurance premium, as the owner of a corporation you shouldn't force them to enroll. It’s your responsibility to protect yourself as well as your incorporated business; if an employee chooses not to participate, ask for written notification as a form of proof that you offered access to an ACA-qualified health plan. Ultimately, there are several factors determining whether an individual should opt out of the American Care Act – age, income, location, employment – to name a few. As an individual weighing your options, consult with your employer’s HR department, and do your own independent research. If you’re a business owner, don’t skimp on the federal requirements; there are many rules with which to abide, but you’ll find a plethora of helpful information online that can serve as a guide.