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 maintaining 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 your tax returns are due, it’s Too Late!
The last day for open enrollment for next year is during December of this year. 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 won’t be paid by many until after open enrollment has ended, as taxes are filed by an April deadline.
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 open enrollment to do so, will have few options to get coverage for the rest of the coming year. 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.
Is Health Insurance Worth It?
Health insurance doesn’t make health care cheaper for everyone; that’s only true for some people. The more care you use, the better deal health insurance is. Even then, you 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 compared to having a medical emergency.
You will need health insurance sometime in your lifetime. 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 cost of healthcare in the US is truly unaffordable. 62% of bankruptcies were medically 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 important 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, it can save your life and your wallet. Speaking of which, let’s get back to the part about your wallet and the imminent perfect storm of fees that is about to hit America between open enrollment period and your income tax deadline
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) if you make enough money to fund an 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 may or may not have to pay the per month Shared Responsibility Payment for them, or a dependent, not having coverage yet. Trump does not appear anxious to impose the fee, but we don’t have a firm ruling.
- The only time Individuals and Families can obtain Minimum Essential Coverage (the type of coverage needed to avoid the fee) is during Open Enrollment. 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 ends before the calendar year. That coverage starts January 1st of the following year at the earliest. If you maintain this coverage you’ll be protected for the per month fee.
- Many who file their taxes for next year will file by the April 15 deadline. Given this, many will realize for the first time that they needed coverage, yet will find that they cannot get coverage that starts before the following year.
- Therefore many Americans who avoided the ACA (ObamaCare) due to talking points, confusion, or whatever will not only owe a per-month fee for each month, they will end up owing a fee. That is potentially a total of 24 months of Shared Responsibility Fee.
- While you reporting coverage was based on the honor system in 2014, you’ll now 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 Looked 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 Went 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 was expected to increase drastically as people respond to subsidies and to penalties for failure to obtain coverage. 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 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 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 paid the tax it would have 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 we are comparing $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 was in 2014, and their family, of course, lacks any 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 with 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; spread the word and save your friends the shock of getting slapped with a fee outside open enrollment. The healthcare industry can be confusing to navigate.
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 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.