What are the Consequences of Lacking Health Insurance?

The Affordable Care Act (ACA) mandates that the majority of Americans purchase health insurance, but not everyone enrolled, and not everyone who did enroll maintained coverage. A fee that is sometimes referred to as the Obamacare penalty could be owed by millions of uninsured individuals.

Who pays a penalty for no health insurance

If you go more than three full, consecutive months without health insurance, you may be subject to a tax penalty. If you have health insurance for a single day in a given month, it counts as an entire month.

Here’s an instance: Suppose you are uninsured for the entirety of January and February. Then, you purchase health insurance, which takes effect on the final day of March. You would not be subject to a tax penalty for lack of health insurance because you did not go three consecutive months without a health plan.

Cost of health insurance penalty

The penalty is calculated in one of two ways: either as a percentage of your total household adjusted gross income or a flat rate, whichever is greater.

• For tax year 2017, the penalty is 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085.
• For tax year 2018 and beyond, the penalty amounts have not been announced, but are expected to increase.

If you have a tax preparer or tax software, he or she can calculate any penalties for not having health insurance. For the 2017 tax year, the IRS will not automatically reject tax returns that omit the disclosure of health insurance coverage. According to the IRS, however, taxpayers who do not respond to the health insurance question may be contacted for follow-up.

Exemptions from health insurance penalty

If you qualify for an exemption under the ACA, you won’t be charged a penalty for not having health insurance. You won’t have to pay a fee if:

• The most affordable coverage costs more than 8.13% of your household income
• You were uninsured for less than three consecutive months of the year
• You are exempt from filing a tax return because your income is too low
• You are Native American or eligible for health services through an Indian Health Services provider
• Your religion objects to the use of insurance
• You’re in prison
• You belong to a health care sharing ministry
• You have been abroad for more than one year
• You qualify for a hardship exemption due to an issue such as homelessness, bankruptcy, eviction or similarly trying circumstances, listed here.

If you believe you qualify for an exemption, you can claim it when you file your tax return, or apply for an exemption on the Healthcare.gov website.

Buying health insurance and avoiding a penalty

If you cannot obtain health insurance through your employer, Healthcare.gov‘s health insurance marketplace is a good place to start. There, you can search for plans and costs or be directed to your state’s exchange.

Open enrollment for ACA health plans, during which you can sign up for next year’s coverage, only lasts 45 days, from November 1 to December 15, 2017. A qualifying life event, such as a recent marriage, divorce, or childbirth, may allow you to enroll outside of the open enrollment period.