Open enrollment for health insurance marketplaces

Beginning on November 1, 2020, individuals (including families) may apply for new health insurance, switch to a different health-care plan, or re-enroll in their current plan through a Health Insurance Marketplace under the Affordable Care Act (ACA).

The open enrollment period for 2021 health coverage ends on December 15, 2020. See Enrollment Period FAQs.

If you don’t have health insurance through a job, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), or another source that provides qualifying health coverage, the Marketplace can help you get covered.

If you have job-based insurance, you can buy a plan through the Marketplace, but you’ll pay full price unless your employer’s insurance doesn’t meet certain standards.

Most job-based plans do meet the standards. See When Other Coverage is Available FAQs.

If you have Medicare, you can’t switch to Marketplace insurance, supplement your coverage with a Marketplace plan, or buy a Marketplace dental plan.

Individuals can use Health Insurance Marketplaces to compare health plans for benefits and prices and to select a plan that fits their needs.

December 15 is the deadline to enroll in or change plans for new coverage to start January 1, 2021.

See Marketplace Eligibility FAQs.

Special health insurance enrollment period

For those who fail to meet the December 15 deadline, the only way to enroll in a Marketplace health plan is during a special enrollment period.

To qualify for special enrollment, an individual must have a qualifying life event such as:

• a change in  family status (for example, marriage, divorce, birth, or adoption  of a child),
• change in residence, or
• loss of other health coverage (e.g., loss of employer-based coverage, loss of eligibility for Medicare or Medicaid).

Also, only plans sold through a Health Insurance Marketplace qualify for cost assistance.

See Marketplace Enrollment Periods FAQs.

How to apply for health insurance coverage

Starting November 1, you can apply for health insurance coverage in a number of ways:

• online (through the federal Marketplace website, healthcare.gov),
• by phone,
• through an assister,
• through an agent/broker,
• through certified enrollment partner websites, or
• with a paper application.

Changes to the Affordable Care Act for 2021

There are several policy changes related to the pandemic that may affect 2021 enrollment and the cost of insurance:

Many states run their own marketplaces and have established special enrollment periods due to the virus. Check with your state’s department of insurance for specific open enrollment dates.

Some marketplace insurers offered additional premium discounts or rebates to policyholders in 2020. These discounts will not impact consumers’ eligibility for premium tax credits, nor affect the tax reconciliation process (an adjustment in your premium cost based on changes to your income).

People who purchased an individual plan of insurance outside of the marketplace and who experience a decrease in income that makes them eligible for advanced premium tax credits, may be eligible to use the special enrollment period to enroll in a marketplace plan. However, this may not be available in all states. Contact your state insurance department to determine eligibility.

Eligible organizations including employers, insurers, and universities may exclude contraceptive coverage on the basis of “sincerely held religious beliefs or moral convictions.”

The Health Insurance Marketplace

Included in the Affordable Care Act (ACA) is the creation of a Health Insurance Exchange or Marketplace through which individuals and families can compare health insurance policies and purchase coverage.

The ACA also provides premium tax credits and cost-sharing subsidies to help reduce the cost of premiums and out-of-pocket expenses for health coverage.

Tax credits available through Health Insurance Marketplace

Eligible individuals and families purchasing insurance through a Marketplace may be entitled to a premium tax credit (PTC) that can reduce the cost of insurance. If you qualify, you can elect to have the credit amount paid to your insurance company to decrease monthly premiums, or you can claim the PTC on your tax return.

See Help Paying Marketplace Premiums FAQs.

Eligibility for tax credits

Eligibility for a premium tax credit is based on the following requirements:

• You must be a U.S. citizen or have proof of legal residency and you must buy health insurance through a Marketplace
• Your household modified adjusted gross income is within a certain range based on the Federal Poverty Level (FPL)
• You are not eligible for minimum, qualifying insurance coverage through your employer or a government program such as Medicare or Medicaid
• If you are married, you and your spouse file a joint tax return
• You are not claimed as a dependent by another person

Tax credits and the federal poverty level

Whether you qualify for a premium tax credit depends on your household income and family size. Income limits are based on a percentage of the Federal Poverty Level.

See Defining Income and Household FAQs.

Household income is your modified adjusted gross income (MAGI) plus the income of every other individual in your family who files an income tax return and for whom you claim a personal exemption deduction.

MAGI is essentially your adjusted gross income plus any excluded foreign income, nontaxable Social Security benefits, and tax-exempt interest.

If your MAGI falls between 100% and 400% of the Federal Poverty Level, you may be entitled to a premium tax credit.

The following table illustrates the relationship between income as a percentage of Federal Poverty Level and household size.

*Incomes that qualify for tax credits are higher in Alaska and Hawaii.

If your income falls within the Federal Poverty Level parameters, the premium you’re required to pay for insurance purchased through a Marketplace is reflected as a percentage of your household income.

So based on the table above, if you have a family of three and your household income is between $21,330 and $85,320, you will be eligible for a premium tax credit. The actual  premium tax credit amount is based on the premium for the second-lowest-cost Silver plan available through the Marketplace.

If you elect to buy more expensive coverage, such as a Gold or Platinum plan, you’d be responsible for the additional premium.

When you apply for insurance through a Marketplace, they will estimate the amount of your a premium tax credit based on information you provide.

Before you actually apply for insurance, you can get an idea of whether you’ll qualify for a premium tax credit and, if you qualify, the approximate amount of the a premium tax credit by referring to the Kaiser Family Foundation calculator. This will show you the average cost of insurance for the second-lowest-cost Silver plan in a Marketplace and the amount of the credit.

To apply the credit to other plans besides the Silver plan, you can get an estimate of the premium cost for insurance purchased through a Marketplace by going to the government website.

The following table shows the maximum amount of premium you’re required to pay (for a Silver plan), based on your income.

Cost-sharing subsidies

In addition to a premium tax credit, the ACA also provides additional assistance to lower-income individuals through tax subsidies that reduce cost sharing by lowering point-of-service costs such as deductibles and co-payments.

See Cost-Sharing Reductions FAQs.

This is done by allowing families with incomes at or below 250% of FPL to be eligible for insurance with higher actuarial values, meaning the plan will pay for more of the covered benefits.

According to the government website, www.healthcare.gov, those eligible for cost-sharing subsidies must purchase a Silver plan through a Marketplace.

However, the benefits covered by the plan will be comparable to either a Gold or Platinum plan, which pays for more of the covered benefits, reducing the out-of-pocket costs for the insured family.

The percentage of benefits for which the plan will pay is as follows:

• For income between 100%-150% of Federal Poverty Level, the plan will pay 94% of covered benefits and the individual pays 6%
• For income between 150%-200% of Federal Poverty Level, the plan will pay 87% of covered benefits and the individual pays 13%
• For income between 200%-250% of Federal Poverty Level, the plan will pay 73% of covered benefits and the individual pays 27%

Out-of-pocket limit

The ACA limits the total amount people must pay for essential benefits covered by non-grandfathered plans purchased through a Marketplace.

For 2021, the limits are $8,550 for an individual plan and $17,100 for a family plan.

For 2020, the limits are $8,150 for an individual plan and $16,300 for a family plan.

These limits do not include premium costs or balance billing amounts for non-network providers and other out-of-network cost-sharing, or spending for non-essential health benefits.

The combination of premium tax credits and cost-sharing subsidies is intended to reduce the cost of insurance and increase the value of coverage available to individuals and families with moderate to low household incomes who don’t have qualifying insurance coverage available through an employer.

See Employer-Sponsored Health Coverage FAQs.

What if your family size or income changes?

It’s possible that after you purchase insurance through a Marketplace, your estimated premium tax credit amount may change during the year due to changes in your family size or income.

If your actual premium tax credit is less than the estimated, the difference will be subtracted from your tax refund or added to the tax due.

And if your actual premium tax credit is more than the estimated, the difference will be added to your refund or subtracted from the tax due.

If, during the policy year, you think your premium tax credit will change, it’s probably a good idea to notify the Marketplace, which can then make the adjustment instead of waiting until the end of the year.

See Challenges Estimating Income and Tax Consequences FAQs.

Plans available through the Marketplace

There are five categories of health plans offered through the Marketplace, based on the percentage of the average overall costs for essential benefits the plan covers.

The percentage of the cost for essential benefits paid by each plan is as follows:

• Bronze plan--60%
• Silver plan--70%
• Gold plan--80%
• Platinum plan--90%

You are responsible for the balance of the costs of benefits.

Marketplaces also provide a Catastrophic plan, which meets all of the requirements of the other marketplace-based plans, but only provides coverage after the plan deductible is met, except for covering three primary care visits per year.

These plans are only available to individuals under age 30 or those eligible for a “hardship exemption.”

Buying short-term health insurance

Should you care about a temporary gap in your health insurance coverage, even if you and your family are healthy?

If you really think about it, any lapse in your health insurance could be devastating. Accidents--a fall off the ladder, a trip down the stairs--occur every day. Hospitals are filled with people who never expected to be there, and medical expenses paid entirely out of pocket can drain your family’s finances.

See Short-Term and Other Policies Sold Outside of the Marketplace FAQs.

Who needs a short-term health insurance policy?

A gap in your health insurance can pop up for many reasons:

• You changed jobs, and your new insurance doesn’t become effective immediately
• You would like an alternative to expensive COBRA benefits
• You’re between jobs and don’t know when you’ll work next
• You just graduated from college and are no longer covered under your parents’ plan or student policy
• You lost coverage because of a divorce
• You’re a seasonal employee
• You’re an early retiree who is not yet eligible for Medicare
• You’re planning a trip overseas, and your current policy does not cover expenses outside the United States

How does a short-term health insurance policy work?

Coverage periods range from 1 to 6 months. When the coverage period ends, the insurance stops.

Some companies will allow you to renew your policy for a total of 12 months. If you still need coverage after that, you will have to go through the application process again and take out a new policy.

There may even be a waiting period, such as 6 months, before you can reapply.

If you had any illnesses or injuries during your previous policy’s period, those now become pre-existing conditions, and you may not be eligible for new coverage.

Benefits vary depending on the policy you purchase, but they usually include:

• Doctor visits
• Diagnostic tests
• Hospital charges
• Complications from a pregnancy (but not pregnancy itself)

These policies are intended to cover unexpected illnesses and accidents--they’re not designed to meet your permanent health insurance needs.

They will not pay for preventive care, such as routine physical exams and well-child care.

Short-term health insurance policies are generally not for individuals with pre-existing conditions diagnosed or treated within the last five years.

If you have ever been denied health insurance, you probably won’t be eligible for short-term insurance, because a denial indicates that you probably have health problems.

Maternity costs are not covered, and most policies will not insure you if any of your dependents are pregnant, whether they are applying for coverage or not.

Additional strict eligibility requirements vary from insurer to insurer.

In many cases, coverage is issued within 24 hours because all you have to do is answer a few basic yes/no questions, and physical exams are usually not required.

How much does the short-term insurance pay?

Deductibles generally range from $200 to $2,500.

After you pay the deductible, the policy pays a coinsurance, such as 50% or 80%.

Some policies pay the coinsurance on expenses up to $5,000 or $10,000, then pay 100% of covered expenses.

For example, if you have a policy with a $500 deductible, 80% co-payment for the first $5,000, and 100% thereafter, your out-of-pocket expenses for a $25,000 medical bill would be:

How much does short-term insurance cost?

You can buy a policy for you and any dependents between the ages of 15 days and 65 years. Premiums vary depending on the coverage you select and your age.

When comparing policies, make sure that you understand your potential out-of-pocket costs.

Some policies require you to pay the deductible each time you are treated for a new injury or illness. For other policies, the deductible applies to the life of the policy.

Ask for the policy’s definition of covered expenses. Some policies base their coinsurance on what they consider usual and customary charges. These are amounts charged for the same service by doctors within your area as determined by the insurance company. If your doctor charges more, your out-of-pocket expenses could be higher than expected.

Other benefits to look for:

• Deductible and emergency room co-payment waived if you are in an accident
• Continuation of coverage if you are in a hospital on the last day of your policy’s term
• Refund of unused premium
• Lifetime benefits of $1 million or more
• Worldwide coverage if you are traveling out of the United States

To reduce costs, choose a policy with a higher deductible. Consider 50/50 coverage instead of 80/20.

Make sure that you can reasonably afford the higher out-of-pocket expenses without ruining your financial plans in the event of catastrophic claims.

Ask about a discount if you pay the premium in a single payment rather than in monthly installments.

Try to buy insurance for the term you need. But don’t cut yourself short--remember, these are nonrenewable policies. If you have to reapply for a new policy, you might not be able to get it.

Health insurance tax tips

Your health insurance coverage probably came in handy several times over the past year. It all seemed so simple at the time--you paid a deductible, and your insurance usually kicked in the rest.

But what do you do at tax time? Just what are you taxed on, and what can you deduct on your federal income tax return?

Your income taxes may be affected by two aspects of your health insurance plan--the premiums and the benefits. Here’s what you need to know.

You don’t include employer-paid premiums in your income

For tax purposes, you can generally exclude from your income any health insurance premiums (including Medicare) paid by your employer.

The premiums can be for insurance covering you, your spouse, and any dependents. It doesn’t matter whether the premiums paid for an employer-sponsored group policy or an individual policy.

You can even exclude premiums that your employer pays when you are laid off from your job.

What if your employer reimburses you for your premiums?

If you pay the premiums on your health insurance policy and receive a reimbursement from your employer for those premiums, the amount of the reimbursement is not taxable income.

However, if your employer simply pays you a lump sum that may be used to pay health insurance premiums but is not required to be used for this purpose, that amount is taxable.

In most cases, you won’t be able to deduct the premiums you pay

The deductibility of health insurance premiums follows the rules for deducting medical expenses.

Usually, the premiums you pay on an individual health insurance policy won’t be deductible.

However, if you itemize deductions on Schedule A, and your unreimbursed medical expenses exceed 7.5% of your adjusted gross income (AGI) in any tax year, you may be able to take a deduction.

You can deduct the amount by which your unreimbursed medical expenses exceed this 7.5% threshold.

Unreimbursed medical expenses include premiums paid for major medical, hospital, surgical, and physician’s expense insurance, and amounts paid out of your pocket for treatment not covered by your health insurance.

If you’re self-employed, special deduction rules may apply

In addition to the general rule of deducting premiums as medical expenses, self-employed individuals can deduct a percentage of their health insurance premiums as business expenses.

These deductions aren’t limited to amounts over 7.5% of AGI, as are medical expense deductions. They are limited, though, to amounts less than an individual’s earned income.

The definition of self-employed individuals includes sole proprietors, partners, and 2% S corporation shareholders.

If you qualify, you can deduct 100% of the cost of health insurance that you provide for yourself, your spouse, and your dependents.

This deduction is taken on the front of your federal Form 1040; the portion of your health insurance premiums that is not deductible there can be added to your total medical expenses itemized in Schedule A.

Your health insurance benefits typically aren’t taxable

Whether we’re talking about an employer-sponsored group plan or a health insurance policy you bought on your own, you generally aren’t taxed on the health insurance benefits you receive.

What about reimbursements for medical care?

You can generally exclude from income reimbursements for hospital, surgical, or medical expenses that you receive from your employer’s health insurance plan. These reimbursements can be for your own expenses or for those of your spouse or dependents.

The exclusion applies regardless of whether your employer provides group or individual insurance, or serves as a self-insurer.

The reimbursements can be for actual medical care or for insurance premiums on your own health insurance.

Note that there is no dollar limit on the amount of tax-free medical reimbursements you can receive in a year. However, if your total reimbursements for the year exceed your actual expenses, and your employer pays for all or part of your health insurance premiums, you may have to include some of the excess in your income.

Contact your health insurance agent and tax advisor to learn more.