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

According to the Affordable Care Act, if you do not get health insurance coverage, you will be penalized at tax time. To avoid a penalty for no health insurance, you must have either a valid exemption or you must be enrolled on a qualified health plan. If you are uninsured for part of the calendar year, you may still be exempt from a penalty so long as you are uninsured for less than three consecutive months. You may also be exempt from a penalty if you are part of a Federally-recognized American-Indian tribe or if you are enrolled on a grandfathered plan*.

What is the health insurance penalty?

The penalty for no health insurance increases each year:

  • In 2015, the penalty is the greater of $325 per adult and $162.50 per child, or 2% of your taxable household income minus the federal tax-filing threshold, which is the minimum income required by the IRS for someone to file an income tax return.
  • In 2016, the penalty goes up to the greater of $695 per adult and $347.50 per child, or 2.5% of your taxable household income minus the federal tax-filing threshold.
  • In 2017 and beyond, the penalty increases to the greater of $695 per adult and $347.50 per child, plus COLA (“Cost of Living Adjustment”), or 2.5% of your taxable household income minus the federal tax-filing threshold.

See chart below.

 

Healthcare Reform Penalties for the Uninsured

What are my options for complying with Obamacare?

You have 3 options and two of them involve a penalty:

  • Get no insurance and pay a penalty for no health insurance at tax time.
  • Get cheap insurance (that doesn’t meet the minimum essential benefits requirements) and pay a penalty at tax time.
  • Enroll in a qualified health plan. This option 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 Penalty Options

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. For example, if in tax year 2015 you were single, aged under 65, had a taxable income of $50,000, and you were uninsured the whole year, your penalty would be calculated as follows:

The greater of $395 or… $50,000 income minus $10,150 Federal Minimum Threshold = $39,850 x 2% = $797 penalty. In this scenario, your tax penalty would be $797. If you remained uninsured in 2017, your penalty would go up to approximately $996 depending on the Cost of Living Adjustment and the Federal Minimum Threshold at that time. At $996 per year, that is still only about $83 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 for no health insurance.

 

* 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. Check with your insurance carrier to verify if your plan is on grandfathered status.