One of the more controversial and debated aspects of the Affordable Care Act is the penalty it imposes on individuals who do not enroll in health insurance by January 1, 2014. The penalty applies to the majority of legal residents of the United States and in 2014 they will face a penalty equal to the greater of:
1) $95 per person with a maximum of $285 for a family
2) 1% of modified adjusted gross household income
In 2014, an uninsured person whose income after tax adjustments is $25,000 would pay a penalty of $250 since 1% of her income is $250 and $250 is greater than the flat fee penalty of $95. These penalties will increase through 2016 when the penalty will be the greater of:
1) $695 per person with a maximum of $2,085 for families
2) 2.5% of modified adjusted gross household income
The penalty shall be pro-rated to the number of months without coverage (e.g. 6 months without coverage = 50% of penalty). Coverage gaps equaling less than three months in a calendar year shall not trigger a penalty.
After 2016, the flat dollar amount (see option #1 in each scenario above) shall be indexed to inflation.
Those households whose annual income is below 100% of the Federal Poverty Level will not be subject to the penalty but would be eligible for Medicaid under most conditions.
As mentioned earlier in the article, penalties for lacking health insurance are calculated using your “modified adjusted gross income,” otherwise known as MAGI. MAGI is not your annual salary. Rather, it can include additional sources of income such as tax-exempt interest income. Furthermore, MAGI includes a variety of tax deductions (but not all of the deductions used to calculate “adjusted gross income” on line 38 of a 1040 tax form). For more information, see the IRS’ calculation of modified adjusted gross income.
The penalty for children will be half the flat dollar amount. Additionally, an overall cap on penalties will apply to families. Individuals who have income too low to file a federal tax return shall have the penalty waived.
Health insurance penalties also apply to businesses but not until 2015. Employers have received a penalty waiver for the year 2014. For businesses that employ the equivalent of at least 50 full time employees, they must offer full time employees at least one affordable group health insurance option that meets or exceeds the actuarial value of a Bronze Plan (for an explanation of “actuarial value” see Affordable Care Act Insurance Plans). “Affordable” in this context means that the single coverage premium paid by the employee does not surpass 9.5% of his or her wages from the company. If a company fails to meet these criteria and employees receive subsidized coverage through an exchange, it faces a penalty. The penalty, determined on a monthly basis, depends on the nature of the employer’s non- compliance.
1. Monthly penalty for employers that fail to provide health coverage: The number of full-time equivalent employees (minus 30) multiplied by 1/12th of $2,000.
2. Monthly penalty for employers that provide coverage failing to meet minimum standards for value and affordability: The number of full-time equivalent employees receiving subsidized Exchange coverage multiplied by 1/12th of $3,000 (this penalty cannot exceed the penalty for providing no coverage).
A variety of groups will avoid the penalty despite a lack of health insurance. These groups include: