After the government enacted the Affordable Care Act, the health care landscape of the U.S. forever changed. Not only are there a higher number of persons insured under the legislation, the health care industry sees an influx of patients in hospitals and medical offices.
While Americans have become more educated on the benefits of the ACA since its passage, there is still some confusion surrounding certain aspects of health care reform, including how it affects people with disabilities.
During Disability Insurance Awareness Month, small-business owners should explore their health coverage options as well as disability insurance policies to make sure employees are protected from unexpected health issues.
Disabilities that cause longstanding medical problems could put workers out of work for a long stint, reducing business productivity. According to the Council for Disability Awareness, the average time away from work due to a disability is 2.6 years for consumers who have been off of work for three or more months.
Due to job absences, workers face a huge financial burden because of their inability to pay their bills. Although just 1 percent of people believe a disability would put them out of commission for more three months, this number is higher, which could mean thousands of dollars lost.
With the introduction of the ACA, people with disabilities must determine how the legislation and disability insurance impacts them and their income.
Here are three things you need to know about health care reform and disability insurance:
1. Disability Insurance Payments May Fall Under Eligible Income for ACA
Geoffrey Cowley, who served as a national health reporter for MSNBC, distinguished between what is considered eligble income when consumers apply for coverage through a health care exchange. When stating income for financial assistance, any payments that are taxable will fall under this umbrella. While Supplemental Security income will not count as eligible income, some long-term disability benefits might.
2. Tax Liability Depends On Who Pays Insurance Premiums
Consumers have the choice between different types of disability insurance coverage, from individual to employer-sponsored to government policies. The key difference in whether these income insurance benefits are taxed is based on who pays for insurance premiums, according to financial planner Ameriprise Financial.
"If you are enrolled in a group disability insurance plan sponsored by your employer, the taxability of your benefits depends on who pays the premium," according to Ameriprise's fact sheet.
Under an employer-sponsored group disability insurance plan, employees may have taxable benefits if the employer pays the total premium and business does not add the cost of the insurance in their workers' gross income.
3. Tax-Free Benefits Is Based on Pre or After-Tax Dollars
According to Ameriprise, whether your disability income is taxable is influenced by whether employees paid premiums using pretax or after-tax dollars. For example, if workers pay for part of a premium with after-tax dollars, they will not have to pay income tax on their benefits.
The financial planning firm suggested it may be better for workers who plan on using their disability benefits to put in after-tax dollars.