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Hard Choices for Self-Employed Caught in Obamacare Gaps

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As he tries to build his consulting business, David Ferreira is making sure he doesn't get sick over the next six months. He's counting down the days until he can sign up for insurance under the Affordable Care Act, or ACA.

"I like the idea of finally being able to get care," said Ferreira. He's gone without health insurance this year, after starting his own firm. Due to pre-existing conditions, the only plan that would insure him cost $1,500 a month.

"I will not be able to be denied because I'm plus-sized, and because I had childhood asthma," he explained, because starting next year he cannot be denied coverage for prior illnesses under ACA, also known as Obamacare.

But starting in 2014, Ferreira will also be required to buy insurance under the health law, or pay a fine ranging from $95 or up to 1 percent of his income. In his income bracket, Ferreira won't qualify for tax credits to make his insurance coverage more affordable, which concerns him.

(Read More: Obamacare Challenge: Youngsters Shun Insurance)

"Nobody's entirely sure how much it's going to cost," said the Washington, D.C.-based consultant just days before the city offered new details of plan offerings for 2014.

The DC Health Benefit Exchange Authority said four major insurers have submitted proposals to offer plans on its marketplace next year, including Aetna and United HealthCare. Proposed rates, published in late June, range from about $170 to $330 a month for individuals about 40 years old, and roughly $300 to $600 a month for those in their 50s.

The DC Exchange estimates small-business plan rates will start at about $140 a month for a 20-something employee and rise to nearly $600 for a baby boomer.

Uneven 2014 Rate Outlook

Analysts said exchanges in Washington, D.C., and the 16 states that are building their own health-insurance marketplaces, which include California, Colorado and Maryland, will likely offer the widest plan options.

But for the self-employed and small-business owners, the insurance options starting next January will vary greatly, depending on what state they're in. In the 26 states that have defaulted to a federally built insurance exchange, which include Texas, Ohio, New Jersey and Mississippi, the options are likely to be more limited.

(Read More: Uh Oh, Obamacare Math Sinks In for Small Businesses)

"The small-business exchange isn't going to be able to provide as many options as originally intended," said Kevin Kuhlman, of the National Federation of Independent Businesses.

Last spring, the Obama administration said it would not be able to meet tight deadlines on the federally built exchanges to set up more than one plan offering for the Small Business Health Options Program, or SHOP exchange, and delayed the full rollout until 2015.

"Small-business owners are only able to enroll their employees into one exchange plan, which is really no different than the status quo," Kuhlman said.

The government relaunched its Healthcare.gov website last month, which will serve as the portal for the federal exchanges. But with 90 days to go until the start of open enrollment Oct. 1, there are few details about plans or rates offered on the site.

Tax Credits Only on Exchanges

Kristie Arslan, president and CEO of the National Association for the Self-Employed, is telling her members to brace for higher rates on most exchanges, especially for those who earn too much for tax credits.

"The health plans that will be offered will be more comprehensive and richer," she said, than lower-cost catastrophic plans that many self-employed now purchase.

Close to half of the NASE's members buy into the organization's group plan in 33 states, but Arslan said starting next year they need to consider their insurance on the exchanges.

"All of the premium assistance, all of the help paying for coverage will be in the exchanges," she explained.

Self-Employed Tax Credit Math

Individuals and families with annual incomes of up to 400 percent of the federal poverty level (FPL) are eligible for premium assistance on the exchanges. For an individual, that amounts up to roughly $46,000, and up to about $94,000 for a family of four.

"You'll want, to the extent that you can, to be exact as possible in estimating your income at the time that you apply for these new programs," said Brian Haile, senior vice president for health policy at Jackson Hewitt.

(Read More: Biggest Cause of Personal Bankruptcies? Medical Bills)

The premium assistance on the exchange is calculated as a tax credit, which can be taken starting in January, or delayed until taxes are filed during the following spring.

Haile said some self-employed and small-business owners, who are on the cusp of qualifying income levels, may want to consider waiting to take the tax credit. If their income exceeds the FPL threshold, the government will claw back all of the payments received during the previous year.

"The consequences here are pretty stark," said Haile.

Married Must File Jointly

The tax credit math gets a bit more complicated for married couples, because spouses are required to file joint tax returns in order to qualify for the premium assistance on the exchanges.

"You won't be able to claim the income separately," Haile said. "That aggregated income, when they add it up, will be used to determine the eligibility for both individuals in that married couple."

In some cases, that could mean the couple would be ineligible, because one spouse earns to too much. But Haile said it could work in some couples' favor.

For example, if one parent in a family of four earns $30,000 a year, and the other earns $50,000 annually, only one of them would be eligible for a subsidy, filing separately. But filing jointly, they're under the 400 percent FPL level, making them both eligible.

David Ferreira is single, for now. After this year out on his own with no insurance, his calculation for 2014 is pretty straightforward. He's signing up for coverage, even if it costs him a little more.

"We all want to be able to have health care," he said.

—By Bertha Coombs. Follow her on Twitter @berthacoombs.

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