Sidestepping the Maze

Affordable insurance for the self-employed is no longer a pipe dream under the Affordable Care Act. Ask Mike Ferguson. He saved $22,788 dollars last year.

Previously, the self-employed psychologist and suicidologist shelled out $2,000 a month for coverage of his three-person family with pre-existing conditions.

Under ACA, his premiums went down 95 percent to $101 a month in 2014.

“I’m not a big Obama supporter, but ACA has been a blessing for the Ferguson family. Regardless of your politics, that’s amazing,” he said. “After 13 years of paying so much, we had to keep pinching ourselves to make sure it was real.”

Once only able to lower cost by banding together for a small group plan, the self-employed can purchase coverage as individuals through HealthCare.gov.

A transplant from New York City, Ferguson said Missouri’s insurance structure was a hard pill to swallow when moving 13 years ago.

While insurors in the Empire State accepted pre-existing conditions, the Show-Me State did not. Couple that with an unstable income in the eyes of the IRS and the family recieved less than favorable rates.

“We weren’t punished for being self-employed, but we were definitely at a disadvantage. It seemed like an unjust system,” he said. “We were approaching a point where we wouldn’t have insurance simply because we couldn’t afford it. ACA has leveled the playing field.”

The Ferguson family is among 85 percent – 89 percent in Missouri – of the 6.2 million 2015 ACA enrollees who now receive a government subsidy for health insurance through the online marketplace, according to the Department of Health and Human Services.

But it isn’t all roses for the self-employed under the new system. Elliott, Robinson & Co. LLP certified public accountant Carrie Brown said the ACA presents a guessing game with some strict consequences.

“The largest challenge for the self-employed is estimating their income,” she said. “Tax credits are calculated on income. If you’re salaried, it’s pretty easy to estimate what you will make next year. If you’re self-employed, that number is always in flux.”

Guess right, and you’re in the clear; guess wrong and you could owe the IRS up to $2,500, the maximum penalty.

Taxing situation
Navigating the ACA maze for the self-employed can be arduous. For some, such as Ferguson, it can be quick in and out. Others, such as Organizational Marketing Solutions LLC owner Brenda Raynor, don’t even venture in.

“With my experience being self-employed since 2008 and being the sole employee, I’ve been very blessed to participate in the family health insurance plan offered through my spouse’s employment,” she said. “I know this opportunity has afforded me with both time and financial savings as an entrepreneur.”

For others, Brown said the maze can be filled with wrong turns. This tax season, in addition to declaring income, deductions, charitable donations and the like, ACA requires taxpayers to report their health insurance coverage. Brown said it’s now time to reconcile the estimated income with actual income. But the self-employed can take steps to mitigate the end-of-year bill.

“Most people choose to use all of their tax credit available, but you don’t have to,” she said. “Say you qualify for $400 a month. You could use $200 a month and not have the buildup come tax time. The problem is most people want to minimize that monthly out-of-pocket.”

Individuals on the federal exchange received an average subsidy of $264 a month and paid $82 a month for coverage in 2014, according to the Department of Health and Human Services. The threshold for subsidy eligibility is based on individual income of $45,900 and $94,200 for a family in 2014.

Erica Gaynor, Ollis & Co. small group and individual benefit adviser, said the self-employed also can mitigate tax time sticker shock by updating their life status throughout the year.

“If you have a life changing event such as a job change, birth or death, you should go update your status online and recalculate your subsidy,” she said. “However, most people don’t. They just get their subsidy, make their payments and forget about the rest.”

The uninsured option
By the end of open enrollment March 31, 2014, more than 15 million previously uninsured Americans are now covered, bringing the total uninsured adults. to 13.4 percent, from 18 percent, according to ObamaCareFacts.com, an independent website. As of January, the current uninsured rate is 12.9 percent, according to Gallup.

“Purchasing coverage prior to Jan. 1, 2014, was hard regardless of if you were self-employed,” Gaynor said, noting she hasn’t seen an influx of uninsured in her office but has fielded many more questions.

Self-employed or otherwise, those without health insurance now face a penalty in the 2014 tax season. Brown said if an individual has had “12 months of minimum essential coverage,” it’s a simple check box on the tax return. If not, there are additional forms.

In 2014, the fine is $95 or 1 percent of taxable income, whichever is greater. Next year, that jumps to $325 or 2 percent of taxable income and by 2016 it’s $695 or 2.5 percent of taxable income.

“This year, it’s probably not going to deter many people, but by 2016 they might be more inclined,” she said, noting the max fine will be $2,085 per family, potentially an entire tax return for some.

Brown said a laundry list of exemptions are available, such as financial hardship, if you’re incarcerated or a member of a federally recognized Native American tribe, but the penalties will apply to the majority of people.

“There are challenges, there is no doubt,” Gaynor said. “But if anything, there is better access to coverage, especially for the sick, versus in the past.”[[In-content Ad]]