What Will It COST To NOT Have Health Coverage?

Starting in 2014, you will be required to purchase insurance or pay a penalty up to 2.5% of your income. You should qualify for Medicaid if your income is 138% or less of the Federal poverty level (2014 poverty level is $16,105 for an individual, or $32,913 for a family of four). Government funded assistance covers the first three years of time, and thereafter the amount decreases to 90%.

You may also qualify for an exemption from the requirement to have qualifying health coverage under specific circumstances; such as, household income below a certain threshold, residence located in a state in which Medicaid has not been expanded, and a variety of other hardship driven scenarios. The following states have not expanded Medicaid: Alabama, Alaska, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maine, Michigan, Missouri, Mississippi, Montana, North Carolina, Nebraska, New Hampshire, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wyoming, or Wisconsin. (For more information, visit HealthCare.gov/exemptions.)

If you opt not to secure insurance and you do not otherwise qualify for an exception, you must pay the tax, as well as any health care costs. If you remain healthy, that’s a great option. However, keep in mind that the average emergency room visit is $1,265, while a something like a broken limb can cost twice as much. Cancer treatment can cost $30,000 ($7,000 for chemotherapy alone). Similar to a homeowners policy or car insurance, health insurance is designed to protect your savings.

So, exactly what will you have to pay if you don’t have insurance? The penalty for not having medical insurance is based on your household income and your tax return filing threshold.

You first need to understand the terminology used to describe the basis for the calculation, so let’s look at two terms:

  • Household income: For purposes of calculating your federal health tax credit, household income is modified adjusted gross income from your tax return plus any excludible foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the adjusted gross incomes of all of dependents in your household who are required to file tax returns.
  • Line 4 if you filed a Form 1040EZ
  • Line 21 if you filed a Form 1040A
  • Line 37 if you filed a Form 1040
  • Tax return filing threshold:Federal income taxes are due from those who earn more than a certain threshold amount; and the threshold amount varies based on your age, marital status, and number of dependent children.

Finally, let’s crunch the numbers. The calculation for not having a minimal essential health insurance policy is determined by the higher of two factors (1) income based penalty or (2) minimum penalty amount.

In 2015, the income based penalty is 2% of your yearly household income. The alternative minimum penalty amount is $325 per person for the year ($162.50 per child under 18).  The maximum penalty per family using this method is $975.

In 2016, the income based penalty will be 2.5% of your yearly household income. The alternative minimum penalty amount will be $695 per person for the year. Beyond 2016, the income based penalty will remain 2.5% of your yearly household income and the alternative minimum penalty amount will be $695 with an added adjustment for inflation.

The Internal Revenue Service offers an interactive tool assistant to help determine if you are responsible for the individual shared responsibility payment.   More information can be found by visiting: http://www.irs.gov/uac/Affordable-Care-Act-1 .

                                                                                                                                                                        By Cathleen Manning, MBA EA CFE