Wouldn’t it be better for me to just pay the penalty for not purchasing a Qualified Health Plan?

The answer depends on your personal situation and whether or not you are comfortable paying a tax penalty.  Sometimes it can be favorable for an individual or family to purchase a non-qualified health plan and pay the penalty.  You should contact a SASid representative at 877-267-3752  to discuss your situation.

The Affordable Care Act (ACA) includes a provision called the individual shared responsibility payment, or more commonly known as the “individual mandate” or tax penalty. It is applied to individuals and families who do not have a Qualified Health Plan for longer than 3 months (these 3 months do not need to be consecutive), and this took effect Jan. 1, 2014.

Estimates from the Congressional Budget Office and Joint Committee on Taxation believe around 6 million Americans will choose to pay a penalty each year instead of purchasing health insurance.

Here is what you need to know about the Tax Penalty and how it is applied:


How to avoid the penalty-

To avoid paying the tax, individuals and families must purchase a health insurance plan which includes a minimum of 10 essential benefits.  These plans are known as Qualified Health Plans (QHP).  People who have other coverage through their employer or enrolled in government subsidized health plans (Medicare, Medicaid, CHIP, or TRICARE) do not need to worry about the tax.

Also, those uninsured individuals with incomes so low they aren’t required to file a federal tax return who cannot find coverage that cost less than 8% of their income do not face a penalty.  Others exempt from the penalty include members of Indian tribes, people whose religion objects to health insurance, undocumented immigrants, Americans living abroad, members of a health sharing ministry and people who are currently incarcerated.


The Penalty Amount-

The penalty for going without health insurance is either a flat fee or percentage of taxable income; based on whichever is greater.

For 2017, the Flat Fee is $695 per adult and $347.50 per child (up to $2,085) and the Percentage of Income is 2.5%.


Prorated Penalty-
If you were uninsured for less than three months of the year you will not need to pay the penalty.  After three months the tax applies to each month within a calendar year that you did not have coverage for yourself or a member of your household.  Insurance companies will provide documentation to prove you had coverage.


No criminal penalties-

Individuals who do not comply with the individual mandate to carry a Qualified Health Plan face no criminal penalties or threat of liens and seizures by the IRS.


How is the Penalty Amount Applied?-

The penalty will be determined when you file your income tax return and deducted from any potential refund. For 2017 plans, they will look at 2016 modified adjusted gross income (MAGI). The MAGI is different from Adjusted Gross Income (AGI) as it includes other deductions such as tuition fees or up to one-half of self-employment tax.


Should I consider a Non-Qualified Health Plan?-

Many people will consider plans which do not meet the 10 minimum essential benefits; referred to as Non-Qualified Health Plans.  These plans include limited indemnity medical, short term medical plans, and others.  Because they do not meet the federal government’s minimum standards these plans can be significantly cheaper.  Some experts believe many Americans will purchase a Non-Qualified Health Plan and pay the tax penalty in cost-saving efforts.

Do small employers have to pay a tax or penalty for not offering health insurance to employees?

No. Under the Affordable Care Act, businesses with fewer than 50 full-time equivalent employees are not required to provide health insurance to their employees—nor will they face  tax penalties if they decide not to do so.

Can I receive a subsidy for my health insurance under the Affordable Care Act?

Possibly.  It depends on your household income and the number of people living with you.

The Affordable Care Act (ACA) includes tax credits or subsidies for individuals and families to use toward qualified health plans found on public exchanges.  Subsidies will be available to qualified individuals and families that have previous reported incomes in the range of 138% to 400% above the Federal Poverty Level.  The below chart shows federal poverty guidelines based on family size:

Eligibility for Premium Tax Credits

Eligibility for the premium tax credit is based on household income and access to minimum essential coverage. The following summarizes the key eligibility standards for premium tax credits (tax credits that reduce the cost of insurance premiums).

You must meet the following criteria to be eligible for a premium tax credit:

  • You are not eligible for minimum essential coverage — including employer-sponsored coverage, Medicaid, CHIP, Medicare, and other forms of coverage — other than through the individual insurance market, unless your employer-sponsored coverage is not affordable or does not provide minimum value (based on by ACA standards).
  • You have an annual household income that is between 100% and 400% of the Federal Poverty Level (FPL), or below 100% of FPL for lawfully present non-citizens who are ineligible for Medicaid by reason of immigration status.
  • You are part of a tax household that will file a tax return for the coverage year and, if the tax household includes a married couple, that will file a joint return
  • You are eligible for coverage through a QHP

If you need guidance on the tax credits and subsidies SASid representatives are available to help you understand your best options.

Below is information on a subsidy estimate tool created by the Kaiser Family Foundation. It will provide you with an estimate tax credit.

The Kaiser Family Foundation health insurance cost and savings calculator

The health insurance costs and savings calculator we link to below provides only an estimate. Your final premiums and costs may differ from the estimates, perhaps significantly, depending on where you live and the coverage you select. You’ll learn your final costs for specific plans when you apply in the Health Insurance Marketplace.

Before you use the Kaiser Family Foundation calculator, there are a few important things to know:

  • The calculator provides a rough estimate of costs for insurance, based on national averages and factors that may not apply to you. It will give you an idea of what someone with circumstances like yours could pay for health insurance.
  • The calculator accounts for some factors that may determine plan costs in the Marketplace: age, family size, and tobacco use. Individual plans will weigh these factors differently to determine final prices.
  • The estimate doesn’t account for differences based on where you live, which will significantly affect Marketplace prices and offerings.
  • The prices are based on a plan in the Silver category. Plans in different categories will likely have higher or lower premiums.  (Plans found on public exchanges offer “metallic plans” with categories of Bronze, Silver, Gold, and Platinum.  These were developed and designed by the government based on essential offerings for qualification.)
  • You won’t be able to get your exact costs for a specific plan until you fill out a Marketplace application during Open Enrollment. Then you’ll see all of the plans available to you, compare features and prices side-by-side, choose a plan, and enroll. You should expect that your final cost will be different from the rough estimate provided here.

The calculator was created by the Kaiser Family Foundation, a non-profit research organization, for use by the general public. The Kaiser Family Foundation is solely responsible for the tool. The Kaiser Family Foundation has no connection with Kaiser Permanente or any health care provider.

SASid did not participate in the creation of this calculator. SASid does not warrant or guarantee the accuracy of estimates provided by the calculator.

If you’re ready to see the estimates, visit the Kaiser Family Foundation website and use the Kaiser Family Foundation’s health insurance costs and savings calculator.