Obamacare has made sweeping changes to the U.S. health insurance system that will make coverage more expensive for everyone. The law calls for a range of tax increases and Medicare cuts to cover the cost of mandates that will affect the finances of everyone who pays for health insurance. Here are five ways Obamacare will hit your wallet and what you can do to prepare for them:
1. Individual mandate
Perhaps the most infamous aspect of Obamacare is its penalty for people who choose to go without coverage. This penalty goes into effect in 2014. The penalty will be assessed as a flat tax or a percentage of income, whichever is greater. By 2016, the penalty will be $695 or 2.5 percent of adjusted gross income. Premiums will be subsidized for households that make less than four times the federal poverty level — $92,200 for a family of four in 2012. Their cost of insurance will be capped at 9.5 percent of income, with this percentage decreasing as their income decreases.
2. Employer mandate
Individuals won’t be the only ones punished for not buying health insurance. Employers with 50 employees or more will be forced to pay hefty penalties if they do not provide adequate coverage. In a recent study conducted by McKinsey & Company, roughly one-third of employers said they would choose to pay the penalty and drop health insurance coverage entirely.
“The mandate makes it extremely expensive to cross the 50-employee threshold,” warns the National Federation of Independent Business. “For example, a midsized restaurant that goes from 49 to 50 employees will face a $40,000 per year penalty. … For some firms, the employer mandate will result in large fines when circumstances change in their employees’ households.” Many businesses, including Papa John’s Pizza, Wendy’s, Taco Bell and Walmart, have already reduced employee hours to avoid triggering penalties.
3. Substandard care
in an attempt to improve initial care for Medicare patients, hospitals face fines if too many are readmitted within 30 days of discharge. This is expected to cost each facility that serves Medicare patients an estimated $125,000 per year. That could mean staff reductions and a decrease in care for all patients. “If the penalties accumulate, it will probably take resources away from other key patient programs,” said Dr. John Lynch, chief medical officer at Barnes-Jewish Hospital in St. Louis.
4. New tax on investment Income
Obamacare imposes a new 3.8 percent tax on capital gains, dividends and interest income for individuals making more than $200,000 and married couples making more than $250,000. This tax penalizes married couples and discourages them from saving money, said Sally Pipes, president of the Pacific Research Institute. That is “exactly the opposite of what the government should be doing in an ailing economy,” she said.
5. Declining job market
Because of the 50-worker limit to avoid Obamacare penalties, some employers will reduce full-time staffers to part-time, trim payrolls to fewer than 50 workers, or simply stop hiring. It will become more difficult for people to hold onto their jobs or find new work. Denny’s, Applebee’s and Papa John’s have already announced plans to reduce staff or delay hiring new workers because of the increased costs.
The good news is that these new costs won’t all be implemented at once. Here are some steps you can take now to prepare for the coming changes.
1. Master your finances
Whether you decide to pay the penalty or end up paying more for your coverage, plan for the extra expense now. Get yourself on a budget and see where you can reduce expenses. Review monthly bills for hidden fees and find out how to get them removed. Check out the competition for your monthly services to see if you can cut costs by switching companies. Commit to paying off all credit card debt keeping yourself debt-free. Look at this as an opportunity to really take charge of your finances by creating a budget. “Many people say they’ve found even more money when they created a realistic budget and stuck with it,” said Dave Ramsey, a personal finance writer and syndicated radio host.
2. Maintain a healthier lifestyle
A healthier lifestyle will reduce your need for medical services and may even make your employer-provided health coverage more affordable. Starting in 2014, you could receive a significant discount or rebate on your health insurance premium if you meet specific health standards or participate in an employer wellness program.
3. Raise your performance level at work
If you even have an inkling that your employer may reduce staff or cut back to part-time levels, act now to keep your head off that chopping block. Forbes recently recommended several things you can do to keep your job. Among them: develop more skills; be overly reliable; work well in a team environment; and identify and solve the problems facing your company.
Holly Mangan is managing editor of Money Crashers. David Bakke is a contributor to Money Crashers Personal Finance (www.moneycrashers.com), an online resource that helps readers save money and build wealth.