The 2010 health care reform law has created a penalty for being without health insurance; its purpose is to strongly encourage the uninsured to get health insurance, either through the new Health Insurance Marketplace or employer-provided group insurance. Here’s how it works.
When the Fee Is Assessed
Starting in 2014, if an individual or family doesn’t have adequate health insurance coverage for at least nine months of the year, they may have to pay a small fee. For 2014, the fee for adults is $95 or 1% of the family’s income, whichever is higher. The fee for uninsured children is $47.50, half of the adult’s fee. The fee can be no more than $285 per family.
The fee will go up to 2% of the family’s income in 2015, or $325 per adult and $162.50 per child, whichever is higher. In 2016, the fee will go up to 2.5% of the family’s income, or $695 per adult and $347.50 per child (up to a total of $2,085 for a family).
Exceptions are made in some cases; see below for a list of situations where the fee doesn't have to be paid.
Who Receives the Fee?
You will calculate the fee will be calculated on your federal income tax return and paid it with your federal income taxes to the IRS. The fee does not go to pay for health care coverage; the individual or family will still have to pay for all of their medical care.
How You Can Get Insurance
If you don’t have insurance through your employer, you can buy insurance through the new Health Insurance Marketplace. If you buy a health plan through the Marketplace, you may be eligible for tax credit and subsidies to lower your costs, depending on your income. (Find out more in Nolo’s article on the Health Insurance Marketplace.)
The open enrollment period for the Health Insurance Marketplace is from October 1, 2013 to March 31, 2014. If you don’t sign up then, you won’t be able to get coverage through the Marketplace until the next annul enrollment period.
Which Insurance Is Adequate?
If you have a health care plan that doesn’t offer certain required, essential benefits, you can still be charged a fee. All Marketplace and employer-provided plans do fulfill the essential benefits requirement, as does Medicare, Medicaid, Children’s Health Insurance Program (CHIP), VA health care, and Tricare for military service members, retirees, and their families. Most catastrophic plans will not comply with this requirement; nor will plans that only cover vision or dental care.
If you are under 30 or have very low income (so that coverage is considered unaffordable), you may be able to buy a catastrophic plan from the Marketplace. These catastrophic plans are allowed because they provide three primary care visits per year at no cost as well as free preventative health screenings and vaccinations.
Who Doesn't Have to Pay the Fee?
Certain uninsured people may not be charged a fee even if they don’t have adequate health insurance. This includes folks who are:
- unable to afford required health insurance because individual coverage would cost more than 8% of the individual’s income (after tax credits and employer contributions)
- not required to file a tax return because their income is so low ($10,000 for an individual, $20,000 for a family)
- uninsured for less than three months during a year
- able to qualify for Medicaid under the new federal income limits, but their state did not opt into the Medicaid expansion
- members of a federally recognized Native American tribe
- members of a recognized religion that opposes health care
- participating in a health care sharing ministry
- undocumented immigrants, or
- in jail or prison.
To qualify for not paying the fee, you must file a hardship or other exemption application, which will be available at the Marketplace website.
Why Would Anyone Not Be Able to Afford Insurance Through the Marketplace?
To qualify for lower premiums for a Marketplace plan, your household income must be between 100% of the federal poverty level and 400% of the federal poverty level. The health care reform law had planned on people with incomes lower than 100% of the federal poverty level ($11,490 for an individual and $15,510 for a couple) to be covered by Medicaid. In some states, they will be, but if your state opted out of expanding Medicaid, you may not qualify for Meciaid or reduced premiums through the Marketplace. This is why the penalty fee will not be imposed on those who would be able to qualify for Medicaid under the new federal income limits, but whose state did not opt into the Medicaid expansion (after the Supreme Court ruled that it was optional for states to do so).
Learn more about the Marketplace and its reduced premiums as well as health care reform in general with Nolo’s series of articles on health care reform.