Today is the day the exchanges established under the Patient Protection and Affordable Care Act, better known as Obamacare, are scheduled to open. Whether that strikes you as good news or bad news, or a mix of both, there’s little doubt it represents a big change in how many Americans will get their health insurance and their healthcare.
I generally try to avoid discussing Obamacare here, instead focusing on more practical information, commentary, and news on how self-pay patients, mostly the uninsured or those with high deductible health insurance plans, can get access to affordable health care. But it’s hard to imagine not offering something to readers of The Self-Pay Patient blog on this important day.
I thought I’d address one of the questions a lot of people are asking, in various forms – does everyone really have to buy health insurance, and are there any exemptions? Apparently the number one question currently being asked at HealthCare.gov, the federal government’s web site set up to help educate people about Obamacare, is ‘How do I get an exemption from the fee for not having health coverage?’.
The short answers are, ‘no’ and ‘yes,’ respectively. I’ve mentioned several times that members of health sharing ministries, who technically are uninsured, are exempt from the Obamacare mandate to purchase health insurance.
Another exemption is available to anyone for whom health insurance premiums would be more than 8% of their annual income, which typically will be individuals and families who are older and make anywhere from 400% of the federal poverty level (about $46,000 for an individual and $94,500 for a family of four in 2014) up to around 800 – 1,000% of the federal poverty level.
Aside from these two fairly broad exemptions, there are a number of other exemptions that are generally much narrower. The federal government’s HealthCare.gov web site lists several additional exemptions from Obamacare, including:
- You’re uninsured for less than 3 months of the year
- You don’t have to file a tax return because your income is too low (Learn about the filing limit.)
- You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider
- You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
- You’re incarcerated, and not awaiting the disposition of charges against you
- You’re not lawfully present in the U.S.
There are also individual ‘hardship’ exemptions that can be requested, including being homeless, facing eviction or foreclosure, bankruptcy, having medical expenses in the previous 24 months that couldn’t be paid, death of a close family member, and other circumstances. These exemptions have to be requested and presumably can be denied, however, while the first group of exemptions are automatic.
For those who don’t obtain coverage and don’t qualify for one of the above exemptions, there is a tax on not having health insurance. In 2014 the tax will be $95 per person or 1% of taxable income, whichever is greater, rising to the greater of $695 or 2.5% of taxable income in 2016.
A number of people have pointed out that for most individuals and families, it will be cheaper to pay the tax than buy insurance – the blog Political Calculations has developed a calculator that tries to answer the question ‘Obamacare: Should you pay the premium or the tax?’
It should be pointed out that the calculator at Political Calculations only compares the premium against the tax, and doesn’t include out-of-pocket costs for healthcare. So for the relatively small number of people with significant health expenses in any given year, paying the premium and getting the benefits will easily outweigh the potential savings of not purchasing insurance and instead paying the tax.
Finally, I should note that there is some doubt about whether the IRS is even able to collect the tax for being uninsured. According to the IRS publication Questions and Answers on the Individual Shared Responsibility Provision:
“The law prohibits the IRS from using liens or levies to collect any payment you owe related to the individual responsibility provision, if you, your spouse or a dependent included on your tax return does not have minimum essential coverage. However, if you owe a shared responsibility payment, the IRS may offset that liability against any tax refund you may be due.”
Essentially, if you’re not due a refund, you don’t have to pay the tax. For many people, ensuring that they aren’t due a refund at tax filing time is a relatively simple matter of adjusting their withholding, while for others such as the self-employed it can be more difficult to accurately avoid being owed a refund.
That said, none of this constitutes tax advice on my part! Anybody considering opting out of Obamacare and avoiding the tax for being uninsured WITHOUT one of the exemptions described above needs to carefully consider all of the potential ramifications, including future tax refunds that may be affected as well as possible future changes in the law, such as if Congress sees a large pot of money to be collected by allowing the IRS to use their traditional methods of tax levies, wage garnishments, and other ways of collecting back taxes.
And I should also add that I’m not urging people to opt out of Obamacare and its exchanges. That is a choice that each individual and family will need to weigh on their own. The only thing I urge is that people be fully informed about all of their options, including the option to exempt themselves from Obamacare and get their healthcare as a self-pay patient.