To buy or pay the penalty?
That is the question that will confront many U.S. residents in the coming months, when open enrollment season begins for health insurance coverage, under the terms of the Affordable Care Act (ACA), also known as Obamacare.
ACA will be fully implemented on January 1, 2014, when most legal U.S. residents will be required to have “minimum essential health coverage” or make a “shared responsibility payment,” as the Congressional Budget Office puts it in regulations it rolled out last fall. That’s code for penalty.
The penalty “is enforced through a (Internal Revenue Service) tax code,” noted Karen Pollitz, a senior fellow at the Kaiser Family Foundation in Washington, D.C.
So when you file your 2014 tax returns, you will have to let Uncle Sam know what kind of health insurance coverage you have and what, if any, tax credit you are eligible for, unless you can claim you are exempt from buying health insurance.
Non-financial exclusions include:
• You are between jobs and without insurance for up to three months.
• It contradicts your religious beliefs.
• You are an undocumented immigrant.
• You are a member of an Indian tribe.
• You are in jail.
The financial exclusions for not having health insurance include having a family income so low that you don’t have to file an income-tax return, Pollitz said. Or your minimum essential coverage exceeds a certain percentage of your household income for the most recent taxable year. In 2014, that is 8 percent.
Coverage could take many forms. It could be a government-sponsored plan like Medicaid or Medicare, an employer-sponsored plan or a plan purchased on the individual market.
The individual one-time penalty under ACA in 2014 will be $95 per adult, or one percent of your income, whichever is greater. So say your annual income is $50,000, you’d pay $500. For every uninsured child, the penalty is $47.50. The family maximum is $285.
“Coverage is assessed on a monthly basis,” said Pollitz. “So if you were uninsured for six months, you’d owe half the otherwise applicable penalty.”
She said that the government has given a wide window – from Oct. 1, 2013 to March 31, 2014 – for enrollment this time, but from next year on there will only be a three-month window to sign up.
Will people take the gamble and skip coverage, hoping that their youth or good health will protect them?
If the state of Massachusetts, which passed a landmark health care law in 2006, which became the blueprint for the 2010 ACA, is any indication the number of people who will refuse to get some form of coverage will be low, Pollitz surmised.
In Massachusetts, she observed, “there’s a culture of coverage. Most people want to comply with the law.”
Indeed, within a year and a half after the law passed there, the majority of people signed up for coverage.
But when it comes to the ACA, an estimated 6 million people, who cannot claim legitimate exclusions, will likely take the gamble and remain uninsured in 2016, the government predicts.
Pollitz said there are no criminal penalties to those who violate the law, just a civil one. That could mean seizing your refund.