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Penalty For Being Uninsured

Health Insurance Penalty for Lack of Coverage or Under-Coverage

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 major medical 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 will not trigger a penalty.

After 2016, the flat dollar amount (see option #1 in each scenario above) shall be indexed to inflation.1

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.

In December 2013, the Department of Health & Human Services announced that the penalty for lacking creditable insurance would be waived for those people who had their health insurance cancelled and have difficulty paying for a metal plan. These individuals are also eligible to enroll in Catastrophic health plans. Normally Catastrophic health plans are limited to people under the age of 30.

What Is Modified Adjusted Gross Income (MAGI)?

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. 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.

Penalty for Uninsured Children

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 will have the penalty waived.

Business Penalties

Health insurance penalties also apply to businesses but not until 2015. Employers have received a penalty waiver for 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. “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 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 employees receiving subsidized Exchange coverage multiplied by 1/12th of $3,000 (this penalty cannot exceed the penalty for providing no coverage).

The employer mandate and the individual mandate for consumers were both scheduled to go into effect in January 2014, but the employer mandate portion of the ACA was delayed one year for employers with 100 full-time equivalent employees (FTEs) and two years for employers with 50-99 FTEs. The number of FTEs for a month is calculated by adding (1) the number of full-time employees and (2) the number of part time employee work hours divided by 120.

Employers with at least one hundred FTEs are not required to provide health plans until 2015, when those employers only must cover at least 70% of full-time employees. In 2016 all employers with at least 50 FTEs must cover at least 95% of full-time employees. Even if an employer covers 95% of their employees, they could still have to pay a yearly penalty of $3,000 times the number of full-time employees that were not offered coverage and that received a tax credit.2

Who Avoids The Penalty?

A variety of groups will avoid the penalty despite a lack of health insurance.3 These groups include:

  • People whose income is below the level that requires the filing of an income tax return
  • People for whom health insurance would cost more than 8% of their income even after employer contributions and government subsidies are applied to the cost
  • Members of a religion (e.g. Old Order Amish) who do not accept the benefits of a health insurance plan
  • Members of a recognized Native American tribe
  • Unlawful residents of the United States
  • Americans incarcerated in prison
  • Members of a health care sharing ministry
  • Individuals having a coverage gap of less than three months
  • Americans who live abroad for at least 330 days within a 12-month period




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