After spending some time on our new Medicare Blog, I realized I needed to start a blog about Covered California as this law is just as confusing as Medicare If not more so since it is so new. To start us off on the right foot let’s start with frequently asked questions. And the most asked question award goes to none other than “How much will I be penalized if I don’t buy health insurance”? The short answer isn’t quite so simple so let’s dig a little deeper into this issue.
To start with, there are many people who will not get penalized due to exceptions from the penalty rule. Some examples are those who have an income low enough that they are not required to pay taxes. If there is no insurance available that is lower than 8% of your income, then you will also not be penalized. Registered American Indian natives are also exempt. If you are not lawfully present in the United States, you will also not be penalized. Those who are incarcerated will not be fined. There is also a list of additional hardships that one can claim to avoid the penalty. You would do this by filling out a form on healthcare.gov. Lastly, you have a grace period of two months to get insurance. This means if you have gone less than 2 months without insurance, you will not get penalized.
For those who do not have an exception to the penalty, please note that the penalty goes up every year. For 2014, for instance, the penalty was 1% of your income or $95 for each adult or $47.50 for each child not insured, whichever is higher. This has been a topic of much confusion as many people mistakenly stated that the penalty was $95. This is NOT the case as the penalty is the higher of the two costs. For 2015 the penalty goes up to 2% of income or $325 per adult or $162.50 per child, whichever is higher. In 2016 the penalty goes up to 2.5% of income or $695 or $347.50 per child.
To further complicate things, the penalty is calculated after the minimum income threshold. To illustrate this, let’s use an example of John. John is a 45 year old single male with an income of $30,000. The income threshold for a single person is $10,150 so John’s income after the threshold is subtracted is $19,850. If John did not get health insurance in 2014, his penalty will be 1% of $19,850 or $198.50. If John fails to get insurance in 2015, his penalty will be $397. In 2016 if John continues making $30,000 and does not get insurance, his penalty will be $695 which is higher than 2.5% of income but John must pay 2.5% of income OR $695 whichever is higher. John’s penalty will come out of his tax refund. If John’s tax refund is not large enough to pay the penalty, the balance is carried forward to be paid in future years refund.
Bottom line, regardless of the penalty, it is always a good idea to have health insurance. Not only can you avoid a tax penalty but more importantly you can protect yourself against the potentially high cost of unforeseen illness and injury. You can also take advantage of many preventative care benefits that can help keep you healthy and these benefits come with zero co-pays. If you have a question about the Affordable Care Act, Covered California, or low cost health insurance, we are just a phone call 1-855-731-8888 or email or online chat away! You can also get an instant online quote on health insurance including a calculation of what your cost will be after a tax credit here.
Please note MP Insurance is an insurance broker and not a tax advisor or CPA. This blog is for informational purposes only and should not be taken as tax or legal advice.
By Theresa Struckmeyer,
Health Insurance Specialist
MP Insurance Solutions is a Covered California Certified Insurance Brokerage. We specialize in Covered California Health Plans, Off Exchange health insurance, Term Life Insurance, Final Expense Insurance, guaranteed income annuities, and dental and vision plans. We specialize in helping those in Southern California including Los Angeles, Riverside, San Bernardino, San Diego, and Orange County California.
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