To Insure or Not to Insure? That is the Question!

Lacking health insurance does not necessarily mean you will have to pay a fine.

Under the Affordable Care Act, United States citizens and certain legal residents are required to either obtain health insurance or pay a penalty. That penalty is the greater of two amounts: a flat dollar penalty for each uninsured adult, which will rise from $95 in 2014 to $695 in 2016; or a percentage of a household’s adjusted gross income in excess of the threshold for mandatory tax-filing.  The percentage will be 1.0 percent in 2014 and then rise to 2.5 percent in 2016 and subsequent years (also subject to a cap).

Most Americans who do not have health insurance will not have to pay the penalty for being uninsured.  This is because they fall into one or more of the exempted categories , including:

  • Unauthorized immigrants, who are prohibited from receiving almost all Medicaid benefits and all subsidies through the insurance exchanges;
  • People with income low enough that they are not required to file an income tax return;
  • People who have income below 138 percent of the federal poverty guidelines (commonly referred to as the federal poverty level) and are ineligible for Medicaid because the state in which they reside has not expanded eligibility by 2016 under the option provided in the ACA;
  • People whose premium exceeds a specified share of their income (8 percent in 2014 and indexed over time); and
  • People who are incarcerated or are members of Indian tribes.

The Congressional Budget Office working in conjunction with the Joint Committee on Taxation have concluded that of the 30 million Americans estimated to be uninsured by 2016, 23 million people will qualify for one or more of those exemptions. Of the remaining 7 million uninsured people, about 3 million people will be granted exemptions from the penalty because of hardship or for other reasons.  This leaves about 4 million people who could be subject to paying a penalty.  However, this 4 million figure is actually less because it includes uninsured dependents of parents who will pay the penalty on their behalf.

The good news is that the government estimates that 2 million less people are projected to pay the penalty than was originally projected in September 2012.   The bad news is that the decrease in the number of people who are projected to pay the penalty largely stems from an increase in the number of people who will be exempt from paying the penalty; not from a rise in the number of people anticipated to be covered by insurance.