Time is flying by. The third annual open enrollment period in the individual market is just around the corner, and before long it’ll be 2016. The individual mandate penalties go up again next year, and for anyone without employer-sponsored coverage who is trying to decide whether or not to buy insurance this fall, we thought a quick review of the ACA fine might be helpful.
How much is the penalty?
The Affordable Care Act requires most people to have “minimum essential coverage” or pay a penalty, which is the greater of a flat dollar amount or a percentage of household income and is pro-rated based on the number of months one or more family members are uninsured.
- The flat dollar penalty in 2016 is $695 per adult and $347.50 per child with a cap of $2,085 per family.
- The percentage of income penalty is 2.5% of “applicable income,” calculated as the taxpayer’s household income minus their tax filing threshold with no cap. For most people under age 65, the tax filing threshold in 2016 will be $10,450 for individual filers and $20,900 for joint filers.
Perhaps an example would help
Let’s say Bonnie’s family of five (Bonnie, her husband Brad, and their three children) earns $55,000 in 2016 and is uninsured all year. Here’s how they’d calculate the penalty:
Flat dollar amount = $695 per adult x 2 adults + $347.50 per child x 3 children = $2,432.50. But remember, the cap for the flat dollar calculation is $2,085.
Percentage of income = $55,000 household income — $20,900 tax filing threshold = $34,100 applicable income. $34,100 x 2.5% penalty = $852.50.
In this case, the flat dollar calculation is higher than the percentage of income calculation, so the family’s penalty will be $2,085. If the family was only uninsured for a portion of the year, the penalty would be one-twelfth of $2,085 multiplied by the number of months they were uninsured. Of course, the calculation can get more complicated if just one or two family members goes without health coverage, and there are a number of exemptions that the family could qualify for to avoid a tax penalty altogether.
Other stuff to consider
Some people will calculate their potential penalty, compare it with the cost of health insurance, and conclude that it’s less expensive to just pay the fine. Before you do that, though, consider this:
- Many families who don’t have health insurance available through an employer will qualify for a premium tax credit to help them pay for health coverage. This is free money from the government that helps lower the net health insurance premium. Families that qualify for but don’t take advantage of the tax credit are leaving money on the table.
- The tax credits also change the “play or pay” calculation. If you’re comparing the cost of health insurance with the penalty you’ll pay if you remain uninsured, remember to factor in the premium tax credit you may be eligible for. It’s possible that the net cost of health insurance is about the same as the penalty.
- The ACA fine for going without health insurance is considered an excise tax and is not tax deductible. Be sure to factor that into your calculations.
- The real cost of going without health insurance is the huge risk you’re taking. A serious and unexpected medical event can wipe out a family’s life savings. It’s still the number one cause of bankruptcy in the U.S.
- Finally, there are ways to supplement your coverage. If you can’t afford a comprehensive gold or platinum plan, why not purchase a bronze-level plan so you at least have some catastrophic coverage and then supplement it with less-expensive accident and critical illness insurance and even non-insurance products like telehealth and prescription savings? The combination of these products can help protect your family from financial loss.
Why you need an agent
All the “other stuff to consider” just helps illustrate why everyone needs a good health insurance agent. Yes, the government has built a nice website that helps people shop for and purchase health coverage on a “do it yourself” basis, but that doesn’t mean they’re going to pick the right coverage. There’s no extra charge to use an insurance advisor, and a knowledgeable agent can help you compare all your options and recommend a plan that’s right for you and your family. If you don’t have an agent, give us a call. We know a few we can recommend…