Health Care Reform – What Happens If You Don’t Buy Insurance?

The centerpiece of the new health care reform law, the “individual mandate,” requires that most Americans have health insurance coverage starting in 2014. While many who are required to buy insurance can get help from the government  (Who Must Buy Insurance and How They Are Helped) ,there is also a cost to those who choose not to comply with the mandate.

Penalty basics:

• Starting in 2014, individuals who are required to obtain insurance but choose not to may have to pay a “shared responsibility penalty” for each month they do not have coverage for themselves, their spouse, and/or their dependents.
• The penalty is meant to encourage people to get health insurance and pay their fair share for health care, even if they are healthy and don’t believe they need health care.
• The penalty is calculated when an individual files his or her tax return after the close of the year. It is paid as an additional tax. For the first year (2014), the penalty may be very small, but will increase in future years.
• The amount of the penalty depends on several factors, notably household income and family size. The penalty applies for each month that the individual does not have coverage.

Exceptions:

The penalty does not apply if an individual:

• Has household income that is less than the filing threshold for the individual’s filing status
• Would have to pay a premium share that is more than 8% of household income
• Has only a short gap in coverage (less than 3 months for the year)
• Has no affordable plan available though the exchange, or an employer
• Is a member of a qualified Indian tribe
• Is exempt from complying with the mandate, for example the individual is a member of a religious order that is specifically exempted

How the penalty is calculated:

• Calculating the penalty is somewhat complex.  There are two methods of calculating the penalty, referred to as the “Flat dollar method” and the “Percentage method.” 
  • The penalty is the larger of these two calculations but cannot be more than the national average Bronze plan premium for the taxpayer’s family size. The Bronze plan represents minimum “creditable coverage” and provides the essential health benefits for the healthcare options available within the exchange.

• For individuals who have health insurance coverage for only part of the year, the penalty is pro-rated for the period they are not covered.

For more information and help:

H&R Block has additional information and resources about the new health care reform law and its impacts at hrblock.com/healthcare.  When H&R Block prepares your taxes, you can be sure the exchange will have your tax return information automatically from the IRS.  We’ll also provide you a Tax and Health Care Review with:

• analysis of your tax options under the new health care rules
• your estimated out-of-pocket expense for insurance if you qualify