Health care has been a confusing subject for me, mostly because I am from Canada, where we never have to worry about health insurance because it doesn’t exist. We just pay higher taxes, and in exchange we never have to worry about going bankrupt if we get sick. Seems like a pretty fair deal to me. Now that I am a freelancer in America, though, things have gotten a little tricky for this frugal model.
When I first moved here, I elected for insurance with the Freelancers union, paying about $360/month, which killed me since I NEVER used my insurance and it felt like a complete waste of money. This especially rang true when a small patch of basel cell carcinoma was found on my face, and my pricey insurance considered it “surgery” and wanted to charge me my $3k deductible to have it removed. That’s right, removing cancer was not covered, so I went to Canada and they were happy to take care of their people. This experience caused me to move on to a high deductible plan where I paid about $165/month and was covered for emergencies only (which I am no longer eligible for because I am over 30 years old). Then, when I didn’t work for a year when I was living in Miami I qualified for medicaid, and that was amazing because it was free.
Now that the government has discovered that I make money again, they want some of it to go towards paying for health insurance. They demand it, actually. At the heart of the Affordable Care Act is the “individual mandate,” which requires Americans to buy health insurance or else be fined. Last year, the tax penalty was the larger of either $325 per adult or 2 percent of your Adjusted Gross Income. In 2016, the penalty grows to a minimum of $695 or 2.5% of AGI per adult. If buying the cheapest plan on the health insurance marketplace would cost you more than 8% of your household income after subsidies, you are exempt from the mandate – so do the math and also research all of the exemption “hardships” to see if loopholes may exist for you. For the rest of us, here’s what you need to know before filing your taxes:
The Tax Penalty
If you lose your job and therefore your insurance, the ACA gives you time to find a policy. You are only penalized if you go more than three months without coverage—so if you buy insurance for the 2016 year that begins on March 1, you do not have to pay the penalty. Similarly, if you lose job-based coverage, for example, in the middle of June and your new coverage does not begin until Aug. 1, you are not penalized. Further, you only pay the percentage of the penalty that corresponds to the amount of the year you went without coverage. So if a person does not have coverage for six months (half of the year) then they would pay half of the penalty.
There is the possibility of an uninsured person not having to pay the penalty, but it involves a specific set of circumstances. For example, if you live in a state where Medicaid did not expand, but you make too little to qualify for a government subsidy.
Deductions for the Self-Employed
Self-employed Americans may not be aware they can deduct their health insurance premiums from adjusted gross income (AGI). The self-employed health insurance write-off is on page 1 of Form 1040, so there’s no need to itemize deductions to take advantage of this tax break. If you were enrolled in an employer-sponsored plan for any part of the year, you may only take premium deductions for the part of the year you were self-employed.
Medical expenses also may be deducted on your taxes if they exceed 10 percent of your AGI. Qualified medical expenses include preventative care, surgeries, dental, vision, prescription medication, appliances (such as contacts, glasses and hearing aids) and travel expenses to obtain medical care.
Health Savings Accounts
A Health Savings Account (HSA) can be used for tax-free health care savings. The maximum contribution in 2016 is $3,350 for an individual. Unused money in an HSA rolls over year-to-year, so you can use it later, which is especially helpful with large and unforeseen medical bills. Only those with High Deductible Health Plans (minimum deductible of $1,300 and out-of-pocket max of $6,550 for 2016) are eligible to contribute to an HSA. Check your plan to and see if you can start saving for healthcare tax-free with an HSA.
As a rule of thumb, if you make less than $46,680 as an individual, you will qualify for some sort of assistance – so check what your AGI is before you file and make sure that you take advantage of this. If your income changes, be sure to report it to healthcare.gov or your state’s exchange so they can adjust your cost assistance levels. This will keep you from paying too much or owing money on your year-end taxes.
For me, I’m kind of screwed. I don’t qualify for any assistance, any hardships, and since I’m too old to qualify for catastrophic insurance, my cheapest option is looking to be about $320/month. I keep scouring the internet for ways to get around this, but it’s looking pretty grim. I could pay the penalty, but that would mean paying something for nothing – so it looks like I’ll need to suck it up like the rest of America … or be really frugal and move back to Canada. They have poutine there. It’s not the worst idea.
Have any solutions or tips I haven’t explored? Please share!