The Penalty: What if I don’t get covered?

According to the Affordable Care Act, if you do not get health insurance coverage in 2014, you will get a penalty that will show up at tax time the next year when you file your 2014 taxes. You must have a health plan with the minimum essential benefits for at least 8 months out of the year in 2014. This means you must enroll no later than March 31st for a May 1st effective date. There are some exceptions for those who are exempt, which includes certain Native American groups and those who are on a grandfathered plan1.

The penalties for not having qualified health insurance coverage start at the greater of $95 per adult (capping off at 3 persons per household) or 1% of taxable household income in 2014. Each year after that the penalties go up until 2017 when they max out at the greater of $695 per adult plus COLA or 2.5% of taxable household income for the year.See chart below for more details.

Healthcare Reform Penalties for the Uninsured

Penalties for the Uninsured under Obamacare

* Note: The $95, $325 or $695 is per adult in the household up to a maximum of three people. For children, the dollar amount penalty is 50% of the adult penalty ($47.50, $162.50 or $347.50).

Due to the fact that penalties are lower at first, some California residents may opt to simply pay the penalty and go without health insurance coverage, especially in the first couple of years. Another option some may choose is to get cheap coverage (that doesn’t meet the minimum essential benefits requirements) and still pay the penalty. If your taxable income is $50,000, your penalty (at 1%) will be only $500 in 2014, but by 2016 it will go up to 2.5% or $1,250. At $1,250 per year, that is still only about $104 per month. If you compare that penalty with paying a theoretical $375 a month for a Covered California plan, it may make sense to just pay the penalty. You have 3 options and two of them involve a penalty: getting no insurance, getting cheap insurance (that doesn’t meet the minimum essential benefits requirements) and enrolling in a qualified health plan. The qualified health plan does not have to be through Covered California to avoid the penalty, but it does have to be a Covered California plan in order to qualify for a government subsidy.

Health Insurance Options in 2014

Three Health Insurance Options in 2014

1 If you enrolled on your current plan before March 23, 2010 and have not changed coverage, then you may have grandfathered status. However, not all carriers in California are giving the option to maintain grandfathered status. As of early 2013, California health insurance carriers that allow for grandfathered plan status include Kaiser Permanente, Aetna, Health Net, United Health Care and Sharp. Carriers that do not allow for grandfathered status in California include Anthem, Blue Shield, Western Health and CalChoice.