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Employer Plans vs. Obamacare? How to Choose

By Lisa Zamosky

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If you haven’t already, you’ll soon begin to see and hear messages about the health insurance marketplaces scheduled to launch October 1st for open enrollment under the Affordable Care Act.

One of the key messages that will be communicated loud and clear is that considerable financial assistance will be available from the federal government for many people who buy insurance through the new state-based marketplaces. In fact, a recent survey conducted by the Kaiser Family Foundation found that nearly half of those who currently buy their own health insurance (rather than getting it through an employer) will qualify for a tax credit when they buy a plan through the marketplaces. And according to a recent analysis by the Commonwealth Fund, 82% of young people between the ages of 19 and 29 who have had a gap in insurance coverage will be eligible for either Medicaid or tax credits.

With all the talk of cost savings, it will be tempting to look to the marketplace to see if you can find cheaper coverage – and if you don’t currently have health insurance or buy it on your own, that’s a wise decision. But if you currently receive health insurance through your job, don’t be too tempted by promises of lower health insurance costs outside of work.

Know the Rules

Under the law, employers with more than 50 full-time employees are required to offer health insurance or pay a fine for failing to do so (though this piece of the law won’t take effect until 2015).

The insurance also has to be considered “affordable”. That means your insurance premium – the amount you pay each month for your health plan – must cost less than 9.5% of your annual income, and it must cover at least 60% on average of medical costs covered by the plan.

Stick with Your Employer’s Plan

For most people, employer-based health insurance will continue to be the better deal for three main reasons.

  1. You probably won’t qualify for tax credits. The Affordable Care Act was written to encourage employers to continue offering insurance coverage and for employees to continue getting benefits on the job. If you have an offer of affordable health insurance coverage at work you won’t qualify for tax credits available through the marketplaces, even if your income would otherwise qualify you. Therefore, if you give up your work-based health insurance in hopes of getting a break through your state’s marketplace, you’re likely to end up paying more for coverage that may not be as robust as what your employer offers.
  2. You’re getting a big price break at work. On average, employers subsidize most of your health insurance costs, picking up anywhere from 70% to 80% of the premium price.
  3. You’re getting a tax break at work too. What most people fail to consider is that health benefits offered through an employer are tax free. Your employer deducts the payments it makes toward your health insurance premium from your income before it pays tax, and excludes these payments from an employee’s taxable income. That’s not the case with coverage people buy on their own.

 

In a new poll conducted by Healthpocket.com, a free website that compares and ranks all health plans, nearly half of Americans surveyed said premiums for health insurance bought in the individual market should be tax-free, just as they are when employers buy it for their workers. And, it’s not hard to see why.

According to their calculations, people with incomes in the 33% income tax bracket must earn ,000 in pre-tax dollars to purchase a health insurance plan with a ,000 annual price tag.

It’s important to point out that the tax credits available through the marketplaces will help to level the playing field for some people who qualify. However, if you earn more than about ,000 per year, you’ll pay the full price tag for your insurance without any tax break at all.

What questions do you have about the health benefits on their way under the Affordable Care Act? Ask your questions or leave comments.

 

 

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