Health
2:41 am
Wed March 12, 2014

You Might Pay A Lot More Than $95 For Skipping Health Insurance

Originally published on Wed March 12, 2014 3:08 pm

2014 is the first year most Americans will have to either have health insurance or face a tax penalty.

But most people who are aware of the penalty think it's pretty small, at least for this first year. And that could turn into an expensive mistake.

"I'd say the vast majority of people I've dealt with really believe that the penalty is only $95, if they know about it at all," says Brian Haile, senior vice president for health policy at Jackson Hewitt Tax Service. "And when people find out, they're stunned. It's much, much higher than they would expect."

In fact, "the penalty is the maximum of either $95 or 1 percent of taxable income in 2014," according to Linda Blumberg, a senior fellow at the Urban Institute's Health Policy Center. "For people with higher incomes, it can be much more sizable than $95."

Blumberg says that even for people with more moderate incomes, it's important to remember that the flat-fee penalty will be assessed for every family member who lacks health coverage.

"So if it's a two-adult household and both are uninsured, it's twice $95 — $190," he says. "Then if there are any children in the family that are uninsured, the penalty for each of them is half of the $95."

The flat-fee penalty maxes out at $285 next year. To help people figure out what they might owe, the Tax Policy Center, jointly run by the Urban Institute and the Brookings Institution, just posted an online calculator. And Jackson Hewitt has its own "How much is my tax penalty?" worksheet.

Haile says it's important to remember that even if most of the family has insurance, having just one uninsured member can trigger the penalty.

"If you've got someone who comes home to live, it could cost you much more than a spare bedroom," he says. "If you claim that child as a dependent, or could claim that child as a dependent, then you suddenly become liable for penalties if that child lacks minimum essential coverage."

The 1 percent penalty, for those hit with that, also has a cap, but the penalty can still get pretty big. The cap is tied to the cost of the national average bronze-level insurance plan. This year's top penalty could be about $3,600 for an individual, and $11,000 for a family of four.

If you're uninsured and earn enough to be potentially liable for penalties, you have to sign up for coverage by the end of this month in order to avoid them.

"Your only chance to buy insurance, unless you have a special qualifying event, is during this open enrollment period," Haile says, "which makes March 31 an incredibly important date for avoiding the penalty. If you want to avoid the penalty, you need to get in and sign up for coverage now."

That's much different from how things were before the law's implementation. But the Urban Institute's Blumberg says it's because of the new rule that protects people with pre-existing health conditions.

"Now the insurance companies can't say no, even if you've had serious health problems in the past, or have a serious health problem today. They can't deny you," she says. "And because of that, people are restricted to obtaining coverage during the open enrollment period or during some other open enrollment period where they've had a change in their family status or income."

Indeed, changes to family status — a birth, divorce or job change — will allow you to buy or change your coverage outside the open enrollment period. And if you're eligible for Medicaid or your kids are eligible for the Children's Health Insurance Program, you can sign up anytime.

There are also lots of exemptions from the penalty itself, Blumberg points out, even for people who remain uninsured. The biggest is for having income below the tax filing threshold.

This year that's roughly $10,000 for a single person and $13,000 for a head of household. If you don't have to file income taxes, you won't have to pay a penalty. You also can get an exemption if the cheapest available insurance would cost more than 8 percent of your income, if you have unpaid medical debt, or for any of several other reasons listed on the HealthCare.gov website.

But for most people with incomes above the poverty line, time is running out to either get insurance or prepare to pay up instead.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

Four point two million, that's how many people had signed up for insurance through the Affordable Care Act's health exchanges as of the end of February. The Obama administration released those numbers and announced they will not be extending the March 31 deadline for people without insurance to sign up. Those who don't act might be in for a rude surprise.

There's been this assumption that the tax penalty for missing the deadline would be minimal. It's actually bigger than many people realize, as NPR's Julia Rovner reports.

JULIE ROVNER, BYLINE: Because the law and the requirement for most people to have health insurance is so new, Congress started out with a penalty that's relatively small. But it's actually not as small as the $95 that so many people, including many in the media, have been citing.

Brian Hale heads health policy for the tax firm Jackson Hewitt.

BRIAN HALE: I'd say the vast majority of people that I've dealt with really believe that the penalty is only $95, if they know about it at all. And when people find out, they're stunned. It's much, much higher than they would expect.

ROVNER: In fact, says Linda Blumberg of the Urban Institute...

LINDA BLUMBERG: The penalty is the maximum of either $95 or 1 percent of taxable income in 2014. For people with higher incomes, it can be much more sizable than $95.

ROVNER: Blumberg says even for people with more moderate incomes, it's important to remember that the flat fee penalty will be assessed for every family member who lacks health coverage.

BLUMBERG: And so if it's a two-adult household and both are uninsured, it's twice $95, $190. And then if there are any children in the family that are uninsured, then the penalty for each of them is half of the $95.

ROVNER: The flat fee penalty maxes out at $285 next year, but even if most of the family has insurance, just one uninsured member can trigger the penalty, says Haile.

BRIAN HAILE: If you've got someone that comes home to live, it could cost you much more than a spare bedroom. If you claim that child or could claim that child as a dependent, then you suddenly become liable for penalties if that child lacks minimum essential coverage.

ROVNER: The 1 percent penalty, for those hit with that, also has a cap, but the penalty can still get pretty big. The cap is tied to the cost of the national average bronze level insurance plan. This year's top penalty could be about $3,600 for an individual, and $11,000 for a family of four.

Now, there's something else that most people don't realize, Haile says, and that's if you're uninsured and earn enough to be potentially liable for penalties, you have to sign up for coverage by the end of this month.

HAILE: Your only chance to buy insurance, unless you have a special qualifying event, is during this open enrollment period, which makes March 31 an incredibly important date for avoiding the penalty. If you want to avoid the penalty, you need to get in and sign up for coverage now.

ROVNER: Now, that's much different from how things were before the law's implementation. But the Urban Institute's Linda Blumberg says it's due to the new rule that protects people with pre-existing health conditions.

BLUMBERG: Now the insurance companies can't say no, even if you've had serious health problems in the past or have a serious health problem today. They can't deny you. And because of that, people are restricted to obtaining coverage during the open enrollment period or during some other situation where they've had a change in their family status or their income.

ROVNER: Indeed, changes to family status, a birth, divorce, or job change, will allow you to buy or change your coverage outside the open enrollment period. And if you're eligible for Medicaid or your kids are eligible for the Children's Health Insurance Program, you can sign up anytime. There are also lots of exemptions from the penalty itself, Blumberg points out, even for people who remain uninsured.

BLUMBERG: The biggest being having income below the tax filing threshold.

ROVNER: This year that's $10,000 for a single person and just under $13,000 for a head of household. If you don't have to file income taxes, you won't have to pay a penalty. You can also get an exemption if the cheapest available insurance would cost more than 8 percent of your income, if you have unpaid medical debt, or for any of several other reasons listed on the HealthCare.gov website.

But for most people with incomes above the poverty line, time is running out to either get insurance or prepare to pay up instead. Julie Rovner, NPR News, Washington. Transcript provided by NPR, Copyright NPR.