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.