4 Things You Should Know About the Obamacare Penalty

Blog3News flash: healthcare can be really expensive.

Total medical costs for an average American family of four is over $22,000.

That’s more than the cost of some midsize cars and nearly as much as the average annual tuition at an in-state public college.

And out-of-pocket costs – an average of $3,600 for co-pays, coinsurance, and deductibles – are more than most households spend on gas each year.

Healthcare is an even larger financial burden for uninsured patients, who pay an average of 35% of total costs out-of-pocket, often are charged more than the insured, and can be denied care based on their status.

Making matters even rockier financially?  Starting this year with the full rollout of the Affordable Care Act, uninsured patients could face stiff penalties for lack of coverage.

Are you currently uninsured? If so, it pays to be prepared. Read on to learn more about the penalty – and how you can avoid paying it.

Know the Key Dates
Bad news first: open enrollment for 2014 ended on March 31, so hopefully you have coverage already lined-up.  Now the good news: If you missed that deadline, you can still apply for a plan on the health exchange if you qualify for a special enrollment period of 60 days following major life events like marriage, moving, birth of a child, or loss of existing coverage.

If you did miss this year’s deadline, open enrollment for 2015 starts November 15th and runs until February 15th.  And applications for Medicaid or CHIP are accepted year-round.

Plan for the Penalty
Under ACA, individuals that haven’t enrolled in a qualified insurance plan will be accessed a tax penalty by the IRS.  That’s commonly referred to as the individual mandate.

Here’s what you need to know from a dollars and cents standpoint: In 2014, individuals without coverage will be charged a fee of $95.00 or 1% of taxable income, whatever number is greater.   If you have children that aren’t covered, the penalty is $47.50 per child – with a maximum penalty of $285.00 per family – or 1% of taxable income.

That might not sound so bad.  But consider the big jumps scheduled for the next few years:

• In 2015, the penalty increase to $325 per person per year or 2% of your income.

• In 2016, it’s $695 per person or 2.5% of income.

• In 2017, fees will be adjusted annually to meet cost of living standards.

Only had coverage for part of the year?  The cost you’ll be expected to pay is 1/12th of the total penalty – although there’s no fee if you lose coverage for less than three months in a given year.

Make Sure Your Plan Qualifies
A key part of the ACA was the Health Insurance Marketplace (or exchange), which launched on the Healthcare.gov website on October 1, 2013.  The exchange is designed to give people the chance to comparison shop qualified health insurance plans offered by private insurance providers – and to check eligibility status for health subsidies, like Medicaid or CHIP.

You don’t have to use the health exchange to shop for coverage.  But if you buy an outside plan, be sure that it meets “minimum essential coverage” requirements – ten core health benefit categories like laboratory services, hospitalization, and prescription drugs.  Workers compensation, coverage for a specific condition or disease, or plans that only offer discounts on healthcare services don’t meet the minimum coverage requirement.

If you buy a plan that doesn’t offer minimum coverage, chance are you’ll by dinged twice – first with the cost of your insurance plan, then with the individual mandate penalty.

Do you Even Have to Enroll?
Before you invest in a plan to avoid the individual mandate penalty, consider your options.

Some people aren’t required to purchase coverage – including if health insurance interferes with your religious beliefs, you’re incarcerated, an undocumented immigrant, or a member of an Indian Tribe.  You’re also exempt if purchasing coverage is an excessive financial burden.  For example, if you make less than $10,000 as an individual or have a family income of less than $20,000.  Or if you have to pay more than 8% of your income for health insurance after taking into account employer coverage or tax credits.

And – for those of you that are just starting out – the ACA mandates insurers allow dependents to stay on their parents plan until they are 26, even if they currently hold a job with benefits.

Have additional questions about the ACA insurance mandate penalty?  Fire away in the comments section below.

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