Now that the tax season for the prior year, 2016, is dying down, we can look forward to avoiding mistakes made in 2017, such as paying the tax penalty for not having adequate health insurance coverage under the Affordable Care Act.
Understanding & Avoiding the ACA Tax Penalty
Without a doubt, one of the most controversial parts of the Affordable Care Act (which now teeters on the precipice of replacement) is the rather substantial tax penalty that one incurs for not having adequate coverage during the year prior. If your family doesn’t meet specific terms that disqualify people from paying the penalty, then you could be hung out to dry for up to around 2,100 dollars.
Why is there a tax penalty?
The rationale behind the tax penalty is simple: By forcing people to choose between “wasting” money on a tax penalty and instead just paying an insurance premium, they will be far more likely to take advantage of health insurance opportunities provided to them through the ACA Marketplace, their employer’s insurance, or private health insurance plans. While this part of the ACA has been less than popular, to say the least, it has at least been effective; the number of entirely uninsured families in the country has steadily declined as access to plans opens up and fear of the wasted cost of a tax penalty push folks toward plans.
Getting Around the Penalty
That said, there are only a small percentage of people in the population that pay the tax penalty currently, with most working-class Americans easily finding ways to get insurance for their families or qualifying for one of the many disqualifying stipulations that allow an uninsured or semi-uninsured family or person to get around the penalty without having insurance. Common disqualifying situations include the following:
- Uninsured period never exceeded more than three consecutive months during the year
- You qualify for an exemption based upon a particular hardship; see the up-to-date exemption information on this healthcare.gov page
- The most affordable coverage available to you through the Marketplace or your employer would cost more than of your gross household income at the following ratios: 8.13 percent for a family plan or 9.66 percent for an individual plan
- Religious reasons, including religious-based objection to insurance or membership to a healthcare sharing ministry
- You’ve been abroad for more than one year
- Income-based exemption, meaning that your income is low enough to not file an income tax return at all
- Person is incarcerated or deceased
Of these, the exemption that will keep you from paying the tax penalty is going to be unique to your situation. The best way to avoid the penalty altogether is simply to get insurance. Of course, you are able to take three months without insurance and suffer no penalty, provided that you have insurance for at least one day within the fourth month and beyond; failure to have insurance for four months or more, without another qualifying disqualifying factor, will lead to a tax penalty on all four months – you don’t just get three for free.
The Debate Behind the ACA & Tax Penalty
Even though the idea of a tax penalty imposed upon otherwise healthy individuals that wish to choose their own level of financial risk by not insuring themselves seems heavy-handed, the idea is actually quite sound. Hypothetically, if every person had access to affordable health insurance offerings, the tax penalty would incentivize each person to opt into that plan, thereby reducing the risk that hospitals and government relief programs have to foot the bill in the event of an unforeseeable illness or injury.
The problem ACA critics frequently point to is that the current offerings under the Affordable Care Act are hardly affordable for many people, which makes the tax penalty feel like a lose-lose situation for them; while there are currently millions of Americans that have access to plans that they would not otherwise, the best subsidies on these plans are reserved for people well under the poverty line, while most people above them saw a noticeable rise in their premium costs. Both individuals and business owners alike have seen a rise in costs after the ACA, which makes the tax penalty feel a little unfair for many folks. Likewise, if someone exists just on the edge of the exemption or tax penalty disqualification factors, they can feel like they are left with no good options: Either enroll in an insurance plan they can’t afford or pay a tax penalty that they also can’t afford.
Obviously, the system in its current state is far from a polished, finished solution. Sooner or later, substantial changes will need to be made to the ACA or a new plan, likely with a similar structure, will need to take its place. In either case, the American taxpayer is currently left either feeling very little impact from the ACA, benefiting greatly from it, or wishing it had never existed, all depending on their socioeconomic status and various other factors.
While many people may say something along the lines of “oh well, they’re going to repeal the ACA anyway,” we wish to remind them that no proposed plan has (or likely will) overwrite tax penalties for 2017 – in fact, none would yet replace the ACA until 2020, at the earliest. This means that, unless you qualify for one or more tax penalty disqualification factors or exemptions, you will be paying upwards of 2,100 dollars per year due to a tax penalty you disagree with. Far better than that is simply seeking health insurance coverage, which benefits you and your family in more ways than the tax penalty would.
Regardless of your political views, as we look forward to the future of healthcare in this country, it is clear that the ACA in its current form will not stand the test of time. That said, it is important to remember that, at the time of its inception, the ACA received bipartisan support due to its placeholder-esque nature; the plan was never designed to be the end-all, be-all of healthcare in this country, but instead represent a pivot away from a sort of “wild west” attitude, where those that can afford health insurance had no worries and those that could not relied upon the grace of hospitals and government aid programs – a system that was even less sustainable than the ACA.
For the foreseeable future, health insurance mandates are the law of the land, and the ACA embodies this principle, just imperfectly. For the modern working family, though, a nation in which health insurance doesn’t play a major part in our month-to-month finances is nowhere near fruition, which means it is best to become, and remain, insured.
It’s Nearly Month Four
If you still don’t have health insurance for 2017, it is likely that you’re approaching the cutoff date for a tax penalty when early 2018 comes around. Reach out to the most trusted team of independent Fort Collins health insurance professionals at Ameri Quote to get the coverage you need to protect your family from major medical debt and the ACA tax penalty.