If you're uninsured, now's the time to buy a plan. March 31 is the end of the annual open enrollment period when people who don’t have coverage through their employers can sign up on or off their state’s marketplace. With limited exceptions, people who miss this enrollment window will be unable to sign up for health insurance until next fall for coverage that starts in January 2015. In addition to being uninsured, you will face a penalty for not having coverage. The fine may be bigger than you expect. Here are the details:
Is everyone required to have health insurance this year or pay a fine?
This year, most people who can afford to buy health insurance but don't do so will face a penalty, sometimes called a "shared responsibility payment." The requirement to have health insurance applies to adults and children alike, but there are exceptions for certain groups of people and those who are experiencing financial hardship.
What kind of insurance satisfies the requirement to have coverage?
Most plans that provide comprehensive coverage count as "minimum essential coverage." That includes job-based insurance and plans purchased on the individual market, either on or off the exchange. Most Medicaid plans and Medicare Part A, which covers hospital benefits, count as well, as do most types of Tricare military coverage and some Veterans Administration coverage.
Insurance that provides limited benefits generally doesn’t qualify, including standalone vision and dental plans or plans that only pay in the event someone has an accident or gets cancer or another specified illness.
If I don’t have health insurance, how much will I owe?
In 2014, the penalty is the greater of a flat $95 per adult and $47.50 per child under age 18, up to a maximum of $285 per family, or 1 percent of your family's modified adjusted gross income that is over the threshold the requires you to file a tax return. That threshold is $10,150 for an individual, $13,050 for a head of household and $20,300 for a married couple filing jointly.
Next year the penalty increases to $325 per adult or 2 percent of income, and in 2016 it will be the greater of $695 or 2.5 percent of income.
The $95 penalty has gotten a lot of press, but many people will be paying substantially more than that. A single person earning more than $19,650 would not qualify for the $95 penalty ($19,650 - $10,150 = $9,500 x 1% = $95). So the 1 percent penalty is the standard that will apply in most cases, say experts. For example, for a single person whose MAGI is $35,000, the penalty would be $249 ($35,000 - $10,150 = $24,850 x 1% = $249).
The penalty is capped at the national average price for a bronze plan, or about $9,800, says Brian Haile, senior vice president for health policy at Jackson Hewitt Tax Service. The vast majority of taxpayers’ incomes aren’t high enough to be affected by the penalty cap, he says.
Many more people will be able to avoid the penalty altogether because their income is below the filing threshold.
Are there any special circumstances that allow me to get insurance outside the annual open enrollment period?
Yes. If you have a change in your life circumstances such as getting married, adopting a child or losing your job and your health insurance, it may trigger a special enrollment period when you can sign up for or change coverage and avoid paying a fine. In addition, if your income is low and meets guidelines in the law, you can generally sign up for your state's Medicaid or CHIP program at any time.
I’m uninsured and signed up on the exchange in March for a plan that starts May 1. Will I owe a penalty for the first four months of the year?
No. In October, the Department of Health and Human Services released guidance saying that anyone who signs up for coverage by the end of the open enrollment period on March 31 will not owe a fine for the months prior to the start of coverage.
What if I have a gap in coverage this year after open enrollment ends? Will I have to pay a fine?
It depends. If the gap in coverage is less than three consecutive months, you can avoid owing a penalty. Subsequent coverage gaps during the year, however, could trigger a fine.
If you have coverage for even one day during a month, it counts as coverage for that month. The penalty, if there is one, would be calculated in monthly increments.
Are parents responsible for paying the penalty if their kids don’t have coverage?
They may be. If you claim a child as a dependent on your tax return, you'll be on the hook for the penalty if the child doesn't have insurance. In cases where parents are divorced, the parent who claims the child as a tax dependent would be responsible for the penalty.
Who’s exempt from the requirement to have insurance?
The list of possible exemptions is a long one. You may be eligible for an exemption if:
- Your income is below the federal income tax filing threshold (see above).
- The lowest priced available plan costs more than 8 percent of your income.
- Your income is less than 138 percent of the federal poverty level (currently $15,856 for an individual) and your state did not expand Medicaid coverage to adults at this income level as permitted under the health law.
- You experienced one of several hardships, including eviction, bankruptcy or domestic violence.
- Your individual insurance plan was cancelled and you consider plans on the marketplace are unaffordable.
- You are a member of an Indian tribe, health care sharing ministry or a religious group that objects to insurance.
- You are in jail.
- You are an immigrant who is not in the country legally.
For a more complete list go to the exemptions page at healthcare.gov or the questions and answers page on shared responsibilities provisions on the IRS website.
When should I claim or file for an exemption?
There's no one-size-fits-all answer. You can claim some of the exemptions when you file your tax return in 2015, but for others, you will have to complete an exemption application available at healthcare.gov.
If you believe you may be eligible for an exemption for financial reasons, experts recommend filling out the paperwork now, if possible, based on your current income and other information. That way, if your circumstances change later in the year -- if your income goes up, for example, and you no longer qualify for an exemption based on plan affordability -- having a certificate of exemption should enable you to avoid owing the penalty. In addition, losing a hardship exemption triggers a special enrollment period to buy a plan outside the annual open enrollment period, but only if you have a hardship exemption in hand.
“From a consumer perspective, even though it’s kind of a burden to go through the process, it makes sense to get the hardship exemption certificate, to be safe,” says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities.
Are U.S. citizens living overseas subject to the penalty for not having insurance?
If you live abroad for at least 330 days during a 12-month period, you aren't required to have coverage in the States.
What happens if I don’t pay the penalty?
The IRS may offset your income tax refund to collect the penalty, but that's about it. Unlike other situations where the tax agency can garnish wages or file liens to collect unpaid taxes, the health law prohibits these activities in cases where people don't pay the penalty for not having insurance.
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