One of the most controversial aspects of the Affordable Care Act (ACA or better known as Obamacare) is the no health insurance penalty. With the mandate, it compels Americans to secure health coverage. Not sure whether you will be asked to pay a tax penalty or how much it will cost? The good news is, it is not as confusing as you may think. Read on to learn more about it.
No Health Insurance Penalty | How to Navigate It
In This Article:
What Is the Individual Mandate? Why Does It Exist?
To understand why there is a no health insurance penalty, you need to know more about the mandate.
The premise of ACA is to provide as much universal health insurance coverage as possible. Americans should enjoy affordable, consistent, and easy access to a health plan.
It may mean working in a profession with health insurance plan or securing health coverage from a government program such as Medicaid. You may also have to sign up for an individual coverage through the health insurance coverage. Otherwise, you may have to pay an individual mandate penalty.
The goal is to reduce overarching health care costs. Proponents believe a larger risk pool will bring down health insurance premiums for all those covered. These include individuals with severe health issues or pre-existing conditions.
Critics argue the Obamacare health insurance creates unnecessary hardships among individuals and prevents them from exercising freedom of choice in healthcare.
No matter your political stance, you are aware the out-of-pocket costs for not having insurance can be considerable. The no health insurance penalty exists to encourage all individuals to enroll in health insurance plans and thereby, broaden the risk pools.
Who Pays the No Health Insurance Penalty?
The good news: you do not have to pay the “Obamacare penalty” immediately in case you do not have a coverage or it has already lapsed. It takes effect as soon as you go a consecutive three months without insurance coverage.
For example, if you waited until February to secure insurance, you will not be assessed a penalty. If you failed to obtain insurance in January, February, and March, you will probably have to settle the no health insurance penalty.
Keep in mind these are pro-rated penalties depending on the months you retained coverage. If you ended the year with health insurance, you may pay a small penalty but avoid the maximum payment.
How Much Is the Health Insurance Penalty 2017?
When determining whether to invest in health insurance, many people compare the cost of the Obamacare tax penalty to the potentially prohibitive cost of premiums. It can be difficult to know how much you will pay for healthcare with and without insurance, but you can at least get a feel for your expected penalty.
There are two ways to calculate the no health insurance penalty:
- Based on a percentage of your household’s income
- As a flat rate per child or adult
Unfortunately, you cannot choose the penalty you prefer. You will be assessed whichever tax penalty is greater.
The no health insurance penalty has varied significantly from year to year as the mandate was slowly phased in. If you paid tax penalties for no health insurance in 2014 or 2015, they were considerably lower than the ones for tax years 2016 and 2017.
For the tax year 2017, the no health insurance penalty amounts to 2.5% of your household’s total adjusted gross income. If you are assessed a flat rate, you will pay $695 for every adult and $347.50 for every child in your household. The maximum penalty per family is $2,085.
What Will the No Health Insurance Penalty Look Like in the Future?
The future of Obamacare and the individual mandate remains unclear. Efforts to repeal and replace the law have stalled, indicating that penalties could exist for the tax year 2018. The recently passed tax bill, though, includes a provision that eliminates the no health insurance penalty beginning in 2019.
Do I Qualify for the Hardship Exemption?
If you cannot afford a health insurance plan but also cannot cover the tax penalty, you may qualify for a hardship exemption. Available to a limited number of individuals, this applies to anyone who cannot purchase health insurance due to the following factors:
- Living in an area with limited access to marketplace plans
- Inability to find an affordable marketplace plan that does not cover abortion
- Death of a family member
- Eviction or foreclosure proceedings
- Natural or human-caused disasters that prompt significant property damage
- Substantial medical debt
The first factor outlined above (limited access to marketplace plans) applies to many prospective patients. A research from the Kaiser Family Foundation indicates half of United States counties only provide access to one marketplace plan. All counties offer at least one plan. “Special circumstances” exemptions are available through various forms on the ACA’s health care website.
Pay less for your premiums in the marketplace with these tips from HealthCare.gov:
Given the current (and proposed) changes to the nation’s health care system, chances are, your insurance situation will see significant alterations in the next few years. For now, keep your insurance up-to-date and meet the minimum essential coverage to avoid the no health insurance penalty. When in doubt, get help from the IRS or a tax professional.
What do you think of the no health insurance penalty? Let us know your thoughts below.