Key Provisions Under the Affordable Care Act for Self-Employed Individuals

Implementation of the Affordable Care Act occurs in stages, with many of the reforms and requirements taking effect in 2013 and 2014. Some of the provisions that may impact self-employed individuals include:

• Individual Shared Responsibility Provisions

  Starting in 2014, the Individual Shared Responsibility provisions of the Affordable Care Act call for each individual to have basic health insurance coverage (known as minimum essential coverage), qualify for an exemption, or make a shared responsibility payment when filing a federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption for several other reasons, including hardship and religious beliefs. Minimum essential coverage includes, at a minimum, all of the following categories: Employer-sponsored coverage (including COBRA and retiree coverage), coverage purchased in the individual insurance Marketplaces, Medicare Part A coverage, Medicaid coverage, Children's Health Insurance Program (CHIP) coverage, certain types of Veterans health coverage, and TRICARE. It does not include certain specialized coverage such as only for vision or dental care, workers’ compensation, or coverage only for a specific disease or condition. For more information on the Individual Shared Responsibility requirements and exemptions that may apply, refer to this Fact Sheet from the U.S. Department of Treasury as well as these Q&As from IRS.
   

• Individual Insurance Marketplaces

Coverage through new competitive health insurance marketplaces for individuals and small businesses will be in place January 1, 2014 with open enrollment beginning October 1, 2013. The individual health insurance marketplaces will offer a choice of four levels of benefit packages that differ by the percentage of costs the health plan covers. Individuals and the self-employed may qualify for individual tax credits and subsidies on a sliding scale, based on income.  Increased access to quality, affordable health care will make it easier for potential entrepreneurs to go out on their own instead of staying at larger firms simply because of "job lock".

• Coverage through Medicaid Expansion

Each state operates a Medicaid program that provides health coverage for lower-income people, families and children, the elderly, and people with disabilities. The eligibility rules for Medicaid are different for each state, but most states offer coverage for adults with children at some income level.  In addition, beginning in 2014, most adults under age 65 with individual incomes up to about $15,000 per year will qualify for Medicaid in every state. To learn more about your state Medicaid program and other options available to you, use the insurance and coverage finder or visit Medicaid.gov.

• Medical Loss Ratio Rebates

  Under the ACA, insurance companies must spend at least 80% of premium dollars on medical care rather than administrative costs.  Insurers who do not meet this ratio are required to provide rebates to their policyholders, which is typically an employer who provides a group health plan.  Employers who receive these premium rebates must determine whether the rebates constitute plan assets.  If treated as a plan asset, employers have discretion to determine a reasonable and fair allocation of the rebate.  For more information on the federal tax treatment of Medical Loss Ratio rebates, refer to IRS's FAQs.
   

• Limits on Flexible Spending Account Contributions

  For plan years beginning on or after January 2013, the maximum amount an employee may elect to contribute to health care flexible spending arrangements (FSAs) for any year will be capped at $2500, subject to cost-of-living adjustments.  Note that the limit only applies to elective employee contributions and does not extend to employer contributions.  To learn more about FSA Contributions, as well as what is excluded from the cap, refer to this document provided by the IRS.
   

• Additional Medicare Withholding on Wages

  Beginning January 1, 2013, ACA increases the employee portion of the Medicare Part A Hospital Insurance (HI) withholdings by .9% (from 1.45% to 2.35%) on employees with incomes of over $200,000 for single filers and $250,000 for married joint filers.  It is the employer’s obligation to withhold this additional tax, which applies only to wages in excess of these thresholds.  The employer portion of the tax will remain unchanged at 1.45%.

• New Medicare Assessment on Net Investment Income

Beginning January 1, 2013, a 3.8% tax will be assessed on net investment income such as taxable capital gains, dividends, rents, royalties, and interest for taxpayers with Modified Adjusted Gross Income (MAGI) over $200,000 for single filers and $250,000 for married joint filers.  Common types of income that are not investment income are wages, unemployment compensation, operating income from a non-passive business, Social Security Benefits, alimony, tax-exempt interest, and self-employment income.
 

Find Insurance Options

Find and compare health plans using this interactive tool provided by the U.S. Department of Health and Human Services.
 

Timeline of Provisions 

The Affordable Care Act timeline provided by the U.S. Department of Health and Human Services includes the next steps you can take to implement the provisions.