Having Health Insurance means you are covered in an emergency. Not getting coverage could result in big fees for those who wait until taxes are due.
Obtaining and maintaing health insurance isn’t just about avoiding a fee, it’s about taking responsibility for your health, knowing you have coverage when you need it, and avoiding the devastating bankruptcy that can come hand-and-hand with not having coverage when you need it.
If you Wait until April 15th, 2015… It’s Too Late!
Feb 15, 2015 is the last day of open enrollment for 2015. Open enrollment is the time when individuals and families can enroll in Minimum Essential Coverage. This is true both inside and outside the marketplace. However, the fee for not having coverage for 2014 won’t be paid by many until after open enrollment has ended, as taxes are filed by April 15, 2015.
Those who won’t realize that they need to obtain and maintain coverage to avoid the fee until they file their taxes, and wait until after Feb 15 to do so, will have few options to get coverage for the rest of 2015. This could result in them owing up to 24 months of payments to the IRS, and missing opportunities to get cost assistance through the Health Insurance Marketplace. Anyone who has simply waited until the ACA affected them personally is about to get a wake up call, luckily this was foreseen by the law and that is reflected in the fee increasing each year. Assuming people needed very few health care services, they will pay less for the fee in 2014 and 2015 then they will for coverage. Of course, that isn’t the point at all…
Is Health Insurance Worth It?
Health insurance doesn’t just make health care cheaper for everyone, that’s only true for some people. Generally, the more care you use, the better deal health insurance is. Even then, you really have to know how to compare plans to get a good deal.
For many people, especially young healthy people, the rule of thumb is the cheaper you can get a plan the better. So if you are eligible for low cost health insurance through Medicaid or the Marketplace, health insurance is a no-brainer. The idea of telling people to opt-out of a dirt cheap subsidized plan is somewhere between insane and criminal. Even full cost plans for younger people are pretty inexpensive.
There is a somewhat of a zero percent chance that you won’t need health insurance in your life-time. If by bad luck you break a leg, or ever get sick, you will experience first hand the reason behind the Affordable Care Act in the first place… the truly unaffordable cost of healthcare in the US. 62% of bankruptcies were medical related before the ACA.
Today all plans must offer basic benefits, some free stuff before cost sharing, and can’t ever charge you more than the maximum in a calendar year. And really, it’s the out-of-pocket maximum that is king/queen here. It’s the fact that you can’t go bankrupt from say, having cancer or being in a car accident. And under the ACA, you can’t be denied coverage for that either. Insurers can’t even put a dollar limit on the amount of essential care you receive.
Health insurance isn’t fun or exciting, and it’s value isn’t obvious all the time, but when you need it… well it can literally save your life and your wallet. Speaking of which, let’s get back to the part about your wallet and the imminent perfect storm that is about to hit America between February 15 and April 15.
FACT: Without health insurance, surgical treatment for a broken arm typically costs $16,000 or more alone. Not treating it can result in infection and death, among other things. Since a typical plan for a young person costs somewhere between free and $100 a month on the marketplace or through Medicaid, you can see how the math stops adding up if you need care for any reason.
ADVICE: If you want to save money, but don’t want to read all the awesome information on health insurance on our site. Go to HealthCare.Gov, get the lowest cost plan you can (Silver if you are eligible for Cost Assistance Subsidies). Make sure you can pair it with a Health Savings Account (HSA). Put money in your HSA and pay for your care out-of-pocket. You’ll be protected in an emergency, be responsible for a lot of your own care, avoid the fee, and lower your taxable income. Please note, only in-network services count toward cost sharing amounts at the full amount. Make sure to understand what your plan covers before you use it.While super helpful talking heads around the media have assured us that”opting-out” out of ObamaCare was a great idea. One has to question if they were thinking more about politics than they were about people.
ObamaCare Deadlines, Taxes, and Cost Assistance
Let’s take a closer look at the reasoning behind the fact that someone without coverage could be responsible for a full 24 months of fees in detail and some ways to get around this.
- Americans haven’t had to actually pay the per month Shared Responsibility Payment for them, or a dependent, not having coverage yet. The payment is owed for the first time on Federal Income Taxes due by April 15, 2015.
- The only time Individuals and Families can obtain Minimum Essential Coverage (the type of coverage needed to avoid the fee) is during Open Enrollment. For 2015 coverage, open enrollment ends February 15, 2015. (Luckily for some Medicaid is offered 365, and other options have different enrollment periods.)
- The only way to get covered outside of open enrollment is by qualifying for a Special Enrollment Period due to certain qualifying life events. Normal qualifiers are things like moving, having a baby, or losing a job. Many Hardship Exemptions also qualify for folks for Special Enrollment.
- On that note, some folks will be eligible for exemptions from the fee for things like income, or affordability. Still most exemptions require an application process and proof. So waiting could result in owing a fee anyway.
- Open enrollment for 2016 starts November 15th, 2015. That coverage starts January 1st, 2016 at the earliest. If you maintain this coverage you’ll be protected for the per month fee in 2016.
- Many who file their taxes for 2014 will do so between February 15, 2015 – April 15, 2015. Given this many will realize for the first time that they needed coverage, yet will find that they cannot get coverage that starts before January 1, 2016.
- Therefore many Americans who avoided ObamaCare due to talking points, confusion, or whatever will not only owe a per-month fee for each month of 2014, they will end up owing the increased fee for each month of 2015. That is potentially a total of 24 months of Shared Responsibility Fee.
- While you reporting coverage is based on the honor system in 2014, in 2015 you’ll get a form from your insurer. You can’t go to jail for not paying the fee, but the amount you owe can be withheld from your returns. If you don’t get a return, you are probably exempt from the fee anyway. You have the option of simply skipping over the part about coverage when submitting your taxes, but we don’t suggest that.
Here is What ObamaCare’s Fee Looks Like
Shared Responsibility Payment for 2014 – If you Went Without Coverage in 2014
The annual fee for not having insurance in 2014 is $95 per adult and $47.50 per child (up to $285 for a family) or 1% of your household income above the tax return filing threshold for your filing status, whichever is greater. You’ll pay 1/12 of the total fee for each full month a family member went without coverage or an exemption.
Shared Responsibility Payment for 2015 – If you Go Without Coverage in 2015
The annual fee for not having insurance in 2015 is $325 per adult and $162.50 per child (up to $975 for a family) or 2% of your household income above the tax return filing threshold for your filing status, whichever is greater. You’ll pay 1/12 of the total fee for each full month a family member went without coverage or an exemption.
Here is What Cost Assistance Looks Like
Ironically, many who don’t pay the fee would have qualified for free or low cost insurance through the Marketplace or even Medicaid or CHIP. The fee may still be cheaper, but this becomes less true each year. Also, it is only cheaper if you don’t need to use medical services. If you do it could end up being a much more expensive option.
Cost assistance includes: Advanced Premium Tax Credits which cap premium costs for those making between 100% and 400% of the Federal Poverty Level (FPL), Cost Sharing Reduction subsidies which cap cost sharing amounts for those making between 100%-250% FPL , and Medicaid for those making less than 138% FPL in states that expanded Medicaid.
FACT: According to an April 2014 report by the Congressional Budget Office (CBO) enrollment through the exchanges is expected to increase drastically from 13 million in 2015 to 24 million in 2016 as people respond to subsidies and to penalties for failure to obtain coverage. To put that in perspective, the same report projected 6 million to be enrolled in 2014, which appears to be on point based on what actually happened (these are total average enrollments, not enrollments at any one time). Essentially this means the shock of realizing there is a fee for not having coverage, and then having to wait almost a year for coverage, is projected to result in one of the biggest drops in the uninsured rate ever. Learn more about ObamaCare enrollment numbers.
Here is the End Result
Every family is different and every person is different, some folks who pay the fee will look back and feel they got the best value by not having coverage. Others will be missing out. Here are some examples of what this could all play out like:
Example 1 Taking our Time Machine Back to the Start of Open Enrollment 2014
Jim (age 27) lives in Seattle Washington and has a Modified Adjusted Gross Income of just under 150% of the Federal Poverty Level ($17,200 makes that true for 2014 and 2015). He expects to have the same income 2015. He uses Washington Health Plan finder, his state’s Marketplace, to get coverage.
He is eligible for a Silver plan with a premium capped at no more than 4% of his income due to Marketplace Tax Credits, which he could get up front or deduct from his Federal Income Taxes. He is also be eligible for Marketplace Cost Sharing Reduction subsidies that would reduce his out-of-pocket costs, based on his income he would be responsible for an average of only 6% of his covered out-of-pocket costs! He would also, importantly, be protected from bankruptcy in an emergency has his maximum out-of-pocket spending for covered services would be capped at $2,250. He will get all his essential preventive services and wellness visit free each year.
Using the plan estimator on WAHealthPlanFinder.org we can see that, after cost assistance, Jim’s plan would cost him no more than $700 each year (4% of his MAGI). That’s $1,400 for two years of coverage.
If Jim pays the tax it will cost him $95 for 2014 and $325 in 2015, a total of $420 for 24 months. So while it was cheaper to pay the fee, this is only true if he used no medical services for 2 years straight. Also consider that for 2015 we are weighing $325 for no coverage versus $700 for coverage. Going without coverage in 2014 was arguably economical for someone of Jim’s age as far as illness goes, but that doesn’t mean he won’t need care when riding his bike or hitting the trails at Mt. Rainer. On that note, Jim should make sure his plan covers traveling in-network.
Example 2 Taking our Time Machine Back to the Start of Open Enrollment 2014
Diego (age 54) and Wanda (age 53) have 3 children (12, 13, 21), live in Austin Texas, and have a Modified Adjusted Gross Income of $240,000 for 2014 and expect to make the same in 2015. That puts them far above the 400% FPL mark, so they won’t get cost assistance. After shopping around for plans outside the marketplace, they choose to shop on HealthCare.Gov, because even though they won’t get cost assistance based on their income they found non-marketplace plans comparable.
Using the plan estimator on HealthCare.Gov we can see coverage for their family would cost about $11,700 a year or $23,472 for two years.
If they pay the fee they will owe 1% of their income in 2014 and 2% of their income in 2015. That amount is capped at the national average of a bronze plan $2,448 x 5 for 2014. 1% of their income is just slightly lower than the national average of a bronze plan at $2,400 and certainly less than five times that. So they owe $2,400 in 2014. For 2015 they’ll owe about twice that at $4,800. That’s a total of $7,200.
So while again it is cheaper to pay the fee than it is to provide coverage to their family, this is again less true in 2015 than it is in 2014, and their family of course lacks any sort of health coverage. One catastrophic accident could mean bankruptcy even with a six figure income and a smaller medical needs here and there could easily end up making up the difference. More importantly unless they pay out of pocket they are putting off essential treatment for their family for two years straight. With a family it’s important to have a family doctor and other services covered at low cost sharing, with so many people to take care of an HMO, with a network that includes their pharmacy and primary doc, and smart cost sharing that covers the services they know they will need at low rates should do the trick.
The Fee Moving Forward
Moving forward into 2016 the fee increases each year:
2016 = $695 per person and $347.50 per child per year (family max $2,085) | or 2.5% of your household income that is above the tax return filing threshold for your filing status (whichever is greater)
2017 = Tax Penalty will increase by the rate of inflation going forward | or 2.5% of your household income that is above the tax return filing threshold for your filing status (whichever is greater)
Each year it makes less and less sense to go without coverage. Do yourself a favor and get covered during open enrollment 2015, spread the word and save your friends the shock of getting slapped with a fee outside open enrollment. The health care industry can be confusing to navigate, and the last thing we need is another round of talking points and repeal attempts riding on the back of the fee following the tax season.
While the fallout could be helpful for opponents of the law running in the ever important 2015 elections, by the time everyone recovers from the shock and 25 million pick up a subsidized plan for 2016, it won’t do much to sway people against the horrors of affordable coverage for the 2016 Presidential Elections. And even if it does, we are talking about the lives of tens of millions of Americans who might go without coverage.
The bottom line: Get the cheapest coverage you can that counts as minimum essential coverage to start, and then adjust it next year if it wasn’t enough. While you won’t get great value every year, the years you do could really make up for it. This is especially true if you have a family. At the very least we suggest exploring your health care options so you know for yourself what is out there. Avoid the fee the smart way by investing in yourself and participating in society (everyones premiums goes down, when everyone has coverage). And next time Matt Drudge or the Koch Brothers tells you to do something, you tell them, “no”.