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David C. Pate: Health insurance penalty could cost more than you think

President and CEO, St. Luke’s Health SystemFebruary 19, 2014 

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We have all heard that the success of the Affordable Care Act depends upon getting young people to sign up for health insurance to help subsidize health care for older individuals who are more likely to have costly illnesses.

The concern has been that the penalty for not buying health insurance coverage pales in comparison with the cost of buying the coverage itself. I commonly hear reference to the $95 penalty and the belief that this amount will not spur the “young invincibles” to action. But this depiction of the fine is only half correct.

This year, the individual mandate of the ACA kicks in, meaning that failure to have health insurance subjects those who earn enough to file taxes for tax year 2014 in April 2015 to a tax penalty based on taxable income for each month without insurance.

The penalty is $95 in 2014 if you are single with no dependents for 2014, but only if that amount is the same or greater than 1 percent of your taxable income (adjusted gross income plus any tax-exempt interest and excluded income earned abroad less your personal exemption and standard deduction).

So unless you make less than $20,000, chances are you will owe more than $95.

There are many exceptions. People covered by Medicare or Medicaid are not subject to the individual mandate and are considered insured. U.S. citizens living out of the country are not subject to the individual mandate. And there are grace periods for life-changing circumstances, such as job changes or birthdays that mean adult children can no longer be covered under their parents’ policies.

If you are married, the penalty is $95 per adult (including adult children who are your dependents). If you have non-adult children, the penalty is an additional $47.50 per child for 2014 up to $285 for a family or 1 percent of your joint taxable income up to the average annual premium for a bronze-level plan on the health insurance exchange, whichever is greater.

In 2015, the penalty is the greater of $325 per adult and $162.50 per child up to $975 for a family or 2 percent of your taxable income up to the average annual premium for a bronze-level plan on the health insurance exchange. In 2016, the penalty is the greater of $695 per adult and $347.50 per child up to $2,085 per family or 2.5 percent of your taxable income up to the average annual premium for a bronze level plan. Thereafter, the penalty will increase by a cost-of-living adjustment.

So, the $95 penalty applies only in 2014 and only to single individuals earning less than $20,000. The penalty you would owe may be much more, depending upon your specific circumstances. Check with a financial adviser. Don’t assume all you’ll owe is $95.

drpate@slhs.org

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