The new healthcare options introduced this month can be complex—and confusing. To help you make sense of it all, Frank Lalli, former editor of Money magazine and author of an upcoming book on finding affordable healthcare, will answer questions through the month of October in his daily blog.
Q: What if I decide not to buy health insurance next year? Will I get fined?
A: If you willfully decide not to get health insurance for yourself next year—or for your dependents—the IRS will almost surely ding you. The requirement to buy health insurance is called the individual mandate, and it is perhaps the most controversial and misunderstood part of Obamacare. And that’s saying a lot!
The goal of the Affordable Care Act is to get every American decent health insurance and therefore the best available medical care. That’s a worthy goal. But as Washington state’s insurance commissioner Mike Kreidler says: “You simply cannot guarantee everyone coverage—regardless of their health status—without requiring that everyone participates.”
To oversimplify, insurance payments from the young and healthy will help cover the costs of the old and sick. Unless the young and healthy get in the boat, the financial weight of the old and sick will sink Obamacare and this country will continue to have around 50 million uninsured people and another 25 million with inadequate health plans. You can see them in your local hospital’s emergency room every day, and, right now, you help pay their medical bills each year with your taxes.
The individual mandate is the law of the land, validated by the Supreme Court. If you don’t get coverage in 2014 at work, on your own or through a government plan like Medicare, the IRS will penalize you when you file your tax return in 2015.
You may have heard that the first year penalty for ignoring Obamacare is only $95—so, no big deal if you ignore the mandate and don’t get insurance. But that’s only part of the story.
If you decide against getting insured next year, the IRS will fine you $95 or 1 percent of your income, whichever is greater. And the IRS will collect the money through your 2015 refund or your withholding.
In addition, you also will be fined for up to two uninsured tax dependents you claim on your return, such as a wife and child. As the regulations read today, experts say that if your health plan at work only covers you, you will be fined for your uninsured mate or child or your other dependents.
Also, the mandate’s fine—which the government’s jargon meisters call a “shared responsibility payment’’—jumps sharply to $695 or the greater of 2.5 percent of your income in 2016.
There are a few exemptions. You will not have to pay a penalty, under these conditions:
• If you earn so little that you are exempt from filing income tax;
• If you can’t afford the insurance—that is, if the cost of available coverage would eat up more than 8 percent of your income;
• If you go without insurance for a maximum of three months—perhaps while you are between jobs;
• And if you are a member of a federally recognized Indian tribe or an established religious sect conscientiously opposed to accepting government benefits, such as the Amish. By the way, don’t even dream about starting your own sect; exempt religious groups have to date back to at least 1950.
Before you decide to “go naked” without insurance next year, consider this thought. “It’s very risky to go without decent insurance,” says Linda Blumberg, senior fellow at the Urban Institute Health Policy Center in Washington, D.C. “People get all sorts of nasty surprises.”
The nasty bills for any of those surprises would be your real penalty.