One of the few things most Americans know about the Affordable Care Act, according to a new Kaiser Family Foundation poll, http://kff.org/health-reform/poll-finding/kaiser-health-tracking-poll-september-2013/, is that it imposes a penalty on those who fail to carry health coverage. Still, they may not realize the penalty gets a lot stiffer after 2014, potentially changing the calculation of whether it’s worth going without coverage.
Someone not insured by the end of the first quarter of 2014 will be assessed a penalty of $95 per adult and $47.50 per child or 1% of household income, whichever is higher.
The Internal Revenue Service will compute the 1% of household income penalty on any income in excess of the tax filing threshold, which would be about $10,000 next year. So a person with income of $50,000 would pay the 1% penalty on $40,000 of income, or $400.
In 2015, the penalties rise to $325 per person ($162.50 per child) or 2% of income. The following year, they rise to $695 per person ($347.50 per child) or 2.5% of income. In following years, the increase is tied to the rise in the cost-of-living rate.
No matter how much one’s income, the fine is capped at a level roughly equal to the cost of a basic policy available on one of the new health-insurance exchanges opening Tuesday.
All this means that for “the young invincible”, who is sure that they won’t get sick and don’t want to pay for health coverage, may find it advantageous in 2014 to pay the $95 penalty and take their chances. But by 2016, it will likely make more financial sense to go on the exchange and buy an inexpensive policy than to pay a large penalty and get nothing.
For most people, the penalty isn’t an issue because they already have qualifying health coverage from their employer or from a government program like Medicare.
The IRS will collect penalties but the agency is somewhat constrained in how it will be able to go after the money. Consumers won’t be subject to criminal penalties.
The health law prohibits the government from using liens or seizure of property to collect payments. The IRS hasn’t provided detailed guidance yet, but the agency has said that if someone owes a penalty, it “may offset that liability against any tax refund” due in future years.
Some people will be exempted from the health insurance requirement, including federally recognized Indian tribe members, prisoners and some religious groups. States can also provide hardship exemptions to individuals or families.