If you you’re planning to save money by skipping health insurance coverage, don’t forget that you may face a federal Affordable Care Act (ACA) penalty for remaining uninsured.
The ACA, commonly called Obamacare, seeks to make health insurance more affordable for low- and moderate-income Americans. It does this, in part, by requiring competitive insurance marketplaces to be established in each state. And to make sure there are enough healthy participants in these marketplace insurance pools to keep rates affordable, the ACA imposes penalties on people who forego health insurance (with some exceptions, as we’ll explain below).
While the election of Donald Trump as the next U.S. president may bring some big changes to the law – he has vowed to dismantle parts of Obamacare, and a GOP-controlled Congress would likely oblige — it remains in place for now. And in the 2016 tax year, Obamacare penalties are expected to affect millions of Americans.
Amy Bach, executive director of the United Policyholders consumer advocacy group, notes that many people have expressed concern about the rising cost of health insurance purchased through ACA marketplaces – particularly as insurers drop out of some markets, leaving less competition. However, one of the chief benefits of the ACA is that it requires insurance providers to insure people with pre-existing medical conditions.
Without the ACA, health insurance would be unavailable to many people with ongoing medical problems, Bach adds. “For people who have gotten health insurance who couldn’t before, it has been a Godsend,” she says.
Who owes an Obamacare penalty, and how much is the fine?
If you were uninsured for more than three consecutive months during 2016, you may face a penalty. Under the ACA, the penalty is called an individual shared responsibility payment. According to Healthcare.gov, the government’s health care website, you must pay a fee for the time that you, your spouse, or your tax dependents lacked qualifying health coverage. You’ll pay your penalty when you file your federal income tax return.
The fee is calculated as flat rate or a percentage of your taxable annual household income, whichever rate is higher. For 2016, the fee will be 2.5% of taxable income or $695 per adult and $347.50 per child, says Nicolas Newsad, author of the “Medical Bill Survival Guide.”
According to the Kaiser Family Foundation (KFF), the maximum fine per family will be capped at $2,085.
In a December 2015 report, the KFF said that people without insurance who qualify for premium subsidies in ACA marketplaces will face an average 2016 tax penalty of $738 per household. Those not eligible for subsidies, who typically have higher incomes, could face an average penalty of $1,450.
In tax year 2017 the income percentage penalty will remain at 2.5%, but the flat rate fee will be tied to the rate of inflation.
Who is exempt from fines?
- Some people are exempted from the ACA’s health insurance requirement, according to Healthcare.gov. You may qualify for an exemption if:
- Coverage would cost more than 8.13% of your household income.
- Your income is so low that you aren’t required to file a tax return.
- You were uninsured for less than three consecutive months during 2016.
- You live in a state that didn’t expand its Medicaid program, and that prevented you from qualifying for government-subsidized coverage.
- You experienced a hardship that prevented you from getting health coverage.
- You’re the member of a Native American tribe or eligible for services through a Native American health services provider.
- You’re part of a religious sect that objects to insurance.
- You’re serving a term in jail or prison.
Why do millions remain uninsured?
Under the ACA, people who aren’t covered by employer-provided health insurance can choose from a menu of coverage at their state insurance marketplace.
Some young adults have found that it’s less expensive to pay a fine to the Internal Revenue Service than to buy a policy that has high premiums and high deductibles, The New York Times reported in October.
Others have found that health insurance simply remains unaffordable to them, even at the reduced costs of Obamacare. In 2015, 46% of uninsured adults said they had attempted to buy health insurance but found it was too expensive, even under Obamacare, according to a September KFF report. Many of those people don’t have access to coverage through their jobs.
At the end of 2015, 28.5 million non-elderly Americans remained uninsured. While that’s a significant number, it’s far less than the 41 million people who lacked coverage in 2014, before the ACA created competitive insurance marketplaces.
Is it practical to do without health insurance?
People who try to save money by living without health insurance are gambling that they won’t become ill and require medical treatment that exceeds their ability to pay, warns Rich Blumenthal, a independent insurance agent in California.
“People say. ‘I don’t need insurance, I am healthy,’” he says. But none of us knows when illness or an accident may strike. “You can’t possibly know if you will face a difficult, expensive situation.”