The Affordable Care Act (commonly referred to as “Obamacare”) has streamlined the availability of health coverage, however to extenuate its importance, a consequence was put into place for individuals that go without health insurance. This fine has been coined as the “Obamacare Penalty.” The logistics can be confusing, however they can easily be simplified.
When is it Applicable?
Unless you qualify for an exemption, everyone is required to be covered under some form of healthcare that meets the minimum requirements as mandated by the Affordable Care Act. If you went about three months or more without the minimum health coverage benefits, then you will be penalized in your tax return.
How much is the Penalty?
The cost is determined in one of two ways:
- A percentage of your total household gross income
- A flat rate
Whichever has a greater cost will be the penalty given to you. For tax year 2016, the penalty is either 2.5% of your total household gross income penalty or the flat rate comes to $695/adult and $347.50/child, whichever is greater. The maximum cost that could be mandated is $2085 or the total yearly premium for the national average price of a Bronze plan sold through the Marketplace. Also, keep in mind that each year the penalty increases with inflation.
How do I Avoid the Penalty?
The easiest answer is to have health insurance. Going through healthcare.gov, or mnsure.org for Minnesota residents, is a simple way to find a plan that fits you. When looking for a plan, consider your lifestyle and income to find a plan that best accommodates you.
Marketplace open enrollment is a three-month period where you can sign up for health insurance. It is possible to sign-up outside of the open enrollment period, however you must qualify for the special enrollment period or a health plan outside of the Marketplace (such as Medicaid or an employer sponsored plan). A qualifying life event is necessary for a special enrollment period, such as a marriage or a birth. A full list of the qualifying events can be found here.
Other places to receive health coverage are through your place of employment, Medicaid/Medicare, or a private insurance company.
There is always the option to go without health insurance and take the penalty, but this is not recommended. Along with an expensive penalty, going uncovered may lead to situations where the burden of paying for insurance is insignificant compared to paying medical bills completely out of pocket.
What are the Exemptions and Hardships?
The reasons you would be considered eligible for an exemption or hardship include:
- You did not have insurance for less than three months (as defined by the Affordable Care Act)
- Your income is too low to file a tax return
- The most affordable option is more than 8% of your household income
- You qualify for a hardship exemption
- You’ve been abroad for over a year
- You experienced domestic violence
- You experience the death of a family member
- You filed for bankruptcy
- You were facing eviction or foreclosure
- You had medical expenses you couldn’t pay that resulted in substantial debt
- You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
- You experienced another hardship obtaining health insurance
You can claim your exemption/hardship on your tax return or apply on healthcare.gov.
Take the time to find out if you will have to pay the penalty, because it may cost you thousands for something that can be avoided with a little work.