The Obamacare penalty is a monthly tax, or fine, which must be paid for not getting health insurance. The Obamacare penalty has significantly increased in 2016, and the its yearly value will very soon reach the price of basic insurance coverage. But how does it actually affect you?
While there is little doubt that Obamacare is a great step forward for the US health system, the reform also brought about a tidal wave of complicated norms and regulations, which can be confusing for the average citizen, to say the least.
In this article, we will attempt to make sense of Obamacare, of the Obamacare penalty and of the specific conditions and benefits brought about by the reforms. First, we will very briefly remind you what Obamacare is and explain what its main benefits are. Then, we will take a look at the Obamacare tax penalty and at who can get an exemption.
The Affordable Care Act (ACA) – “Obamacare”
Obamacare is the popular term for a major set of US health system reforms, signed into law by President Obama in 2010, during his first term in the White House. Obamacare has since changed the face of the US health system and has made insurance accessible and more affordable to the vast majority of US citizens. Here are some of the major benefits of Obamacare:
- The Eligibility for Medicaid has expanded to include families and individuals who were not previously able to get insurance, despite low and very low incomes. As such, the upper limit for automatic Medicaid eligibility is now 138% of the federal poverty level (FPL). Depending on the number of people in the household, the FPL can vary from approximately $11,800 for 1 person to $24,300 for 4 people.
- Health Insurance Marketplaces have been set up by the government to help you shop for the best type of insurance, suitable for your specific needs. Signing up for insurance thus becomes much easier than before.
- Cost Assistance will be granted to citizens and small businesses when using the Health Insurance Marketplace.
- Large companies must provide insurance coverage to full-time employees. A US premiere, it greatly increases employee motivation and guarantees a minimum of health security by compelling employers to accept these new terms.
- You cannot be denied insurance due to motivations including, but not limited to, age, gender, religion, health status, previous health conditions.
- Insurers must spend 80% of all income on actual healthcare. This is a very important provision, which has reduced healthcare costs enormously over the past few years.
- The basic insurance will include a wider set of essential medical services (maternity, emergency care, prescription drugs, pediatric medicine, vision and dentistry for children etc.).
Obamacare Enrollment Period
One of the problems with Obamacare is the fixed time interval in which you can actually purchase insurance. This is called Open Enrollment, and usually takes place between November and January. The Open Enrollment for 2016 is now over, and you will not be able to purchase insurance for you and your family by regular means until the next enrollment period.
Fortunately, there are some ways to bypass this. If you want to purchase insurance, you might qualify for a special enrollment period, which is granted for special life events (marriage, childbirth, etc.) that prevented enrollment in the standard interval, hardships and/or other issues (such cases must be supported by relevant documentation).
If you don’t want to purchase insurance until the next standard enrollment period, you will have to file for an exemption in order to avoid paying Obamacare penalties. Just below, we will take a look at a list of situations which could allow you to become exempted.
The Obamacare Penalty -Exemption Rules and Procedures
As previously mentioned, under Obamacare, you must purchase at least a basic health insurance or else pay an annual penalty, which is split into 12 installments (one each month). If you don’t pay the required penalty, the IRS does not have a mandate to take legal action against you but can and will add the penalty to other compulsory taxes or withhold money from your tax returns.
However, there are several categories of people who are exempt from paying the Obamacare penalty for not enrolling in an insurance program. In some situations, individuals who are exempt should submit an exemption form before being recognized as such by the government.
How much is the Obamacare Penalty?
The penalty for Obamacare has increased markedly since 2014 and 2015. In 2016, citizens without insurance and not legally exempt from purchasing insurance owe $695/adult and $348/child OR 2.5% of the entire household income, which you should calculate as per the tax return filing status. You will pay by using the method which results in a higher penalty.
The “fines” are paid in 12 installments throughout the year. The number of installments is equal to the number of months which passed without the purchase of insurance. The penalty of not having Obamacare will continue to rise until it reaches the level of a basic insurance package, making it highly unfavorable to continue not purchasing some form of insurance. You can check out an Obamacare penalty fee calculator here, to see what amount you might have to pay.
How do you File Your Taxes and the Obamacare Penalty Fee?
Filing your taxes and your Obamacare penalty fee is done at your insurer, who should provide you with the necessary forms. If you were exempt from paying the Obamacare penalty, make sure you first get your Electronic Confirmation Number (ECN), which will be used to confirm exemptions from paying the fee. The ECN can be obtained here.
List of Obamacare Penalty Exemptions
Below, we have highlighted some major situations in which you could be exempted from buying insurance, and implicitly from paying the Obamacare penalty.
- Unaffordable Coverage. Any household for whom the purchase of insurance would entail a cost exceeding 8% of their total household income is exempt from paying the Obamacare penalty fee. If you work for a small employer, who provides insurance at costs exceeding 9.5% of total household income, an exemption is also in order. You must apply for the exemption in order for it to enter into force.
- Low Income. Citizens with low and very low incomes, as per the IRS threshold, are automatically exempt (no application is required).
- Hardship Exemptions apply when you can prove that you intended to purchase insurance but you were unable to do so due to a hardship. The complete list of situations which may qualify you for a hardship exemption, accompanied by application procedures and forms, can be found here. Some hardship situations which can qualify you for exemption, and the supporting documents you need, are: lack of residence (no documentation required), eviction (copy of foreclosure notice), domestic violence (no documentation required), death of a family member (copy of death certificate), natural disaster (a report from the police, any state/federal authority or a credible source).
- Short Coverage Gap Exemptions apply if you do not have valid insurance for a period equal to or less than three consecutive months. In other words, you have a three-month period to decide what type of insurance you would like to purchase, for which you don’t have to pay the Obamacare penalty. However, note that this exemption only applies if you actually purchase insurance at the end of the three-month period.
- Religious Exemption. There is the possibility to qualify for a religious exemption, in accordance with state and federal law, and the regulations enforced by the Social Security Administration.
- Incarceration. Any individual serving a prison sentence is exempt.
- Native Americans. You don’t have to pay any Obamacare penalty if you are a Native American and a member of a state-recognized tribe.
All money collected from the Obamacare health insurance penalty is redirected toward improving the health system overall and the condition in which people will obtain insurance for medical services.
Since the start of the Obamacare health reforms, opinions have been split on whether this is a sustainable and successful program. Despite the very high costs it entails for the already burdened US economy, it is hard to deny that Obamacare has brought affordable healthcare for a great many people who had been previously left out.
The Obamacare penalty is still of debatable Constitutional correctness, but can be conveniently avoided by opting for the more accessible and cheaper health insurance packages available on the market. In the end, who wouldn’t pay a minimum sum for decent health insurance?