Now that the Supreme court has upheld key provisions of President Obama’s health care reform plan, also known as ObamaCare or the Affordable Care Act, all Americans with an income above a certain threshold will have to purchase health insurance. The provision referred to as the individual mandate is what will legally require most US citizens and legal residents to obtain private, employer sponsored or public health insurance (through state run exchanges) starting in 2014. Based on the most recent data available it is estimated that more than half of the US population gets health insurance directly through their employers, while 50 million people are uninsured. The remaining consumers either buy their own private insurance or are covered by federal/state government programs, such as Medicaid and Medicare.
Here is a brief summary of the penalties for not having health insurance:
Individuals: From 2014 (reported in 2015), individuals who did not have insurance would owe $95, or 1 percent of income, whichever is greater. But the penalty would subsequently rise in 2016, reaching $695, or 2 percent of income, whichever is greater. From 2017, the minimum tax per person will rise each year with inflation. And for children 18 and under, the minimum per-person tax is half of that for adults. The tax penalty is pro-rated, so that a person who is not covered for only a single month would pay 1/12th of the tax that would be due for the full year.
Families: For families the health insurance non-compliance penalty is capped at $285 per family, or 1% of income, whichever is greater. By 2016, it will jump sharply to $2,085 per family, or 2.5% of income, whichever is greater. From 2017, the penalty/tax will rise in line with inflation. The minimum amount per family is capped at triple the per-person tax, no matter how many individuals are in the taxpayer’s household. So, for example, a couple with one child over 18 (or two children age 18 or under), and no coverage, would pay a minimum of $285 in 2014, $975 in 2015 and $2,085 in 2016. And that would be the minimum no matter how many uninsured dependents a taxpayer has.
Individuals or families who fall below income-tax filing thresholds would not owe anything. Nor would people who are unemployed or cannot find a policy that costs less than 8% of their modified adjusted gross income. On the other hand, to offset the cost of providing insurance to low income households, individuals making more than $200,000 a year and couples earning above $250,000 will get additional health care taxes deducted as payroll taxes. These people are also hit with a 3.8 percent tax on investment income.
Employers: Also from 2014, employers with 50 or more workers could face federal fines for not providing insurance coverage. Several of the other changes would take effect much sooner. For the current and future impacts of health insurance on employers see this article.
How Individual Health Care Coverage Will be Monitored
Since 2011, employers have had to state the value of the health care benefits provided to each employee on their W-2 at the end of each year. Insurers (including employers who self-insure) that provide minimum essential coverage to any individual during a calendar year will also have to report certain health insurance coverage information to both the covered individual and the IRS. Thus, the IRS will ultimately be responsible for reporting an individuals and business’ non-compliance with purchasing health insurance.