Penalties Increase for Going without Coverage

CPPP's Stacey Pogue

Open enrollment for the Health Insurance Marketplace began on November 1. In roughly the first two months, 8.5 million people nationwide selected plans in the federal Marketplace. About 6 million consumers renewed their existing coverage, and about 2.5 million consumers newly selected a plan. So far, 1.1 million Texans have selected plans for 2016. Open enrollment runs through January 31.

Many people are enrolling because they get good insurance at an affordable price. More than four-out-of-five enrollees in Texas get financial assistance to lower their monthly premiums. But that may not be the only motivator driving enrollment. The “individual mandate” requires that most people who have an affordable option get covered or face a penalty. Some people are exempt from the penalty; for example, people who fall into the Coverage Gap or others for whom coverage would cost more than 8.13 percent of household income.

The penalty amount has ramped up over the three-year period from 2014 to 2016, and will increase substantially for 2016. People who forego insurance in 2016 will be subject to a penalty that starts at $695 a person and goes up based on income to around $2,500 a person.

The Kaiser Family Foundation released a report in December estimating the average household penalties for lack of coverage in 2015 and 2016. Remember, a penalty for being uninsured in 2015 will not be charged until the household files taxes in April 2016. It shows that the average household penalty will jump to $969 for 2016, up 47 percent from $661 for 2015.

Among Uninsured Individuals, the Average Household Shared Responsibility Penalty, 2015-2016; ACA fines; Obamacare fines; marketplace subsidies

People should take note of this substantial potential penalty now, during open enrollment, for two reasons.

First, for about one-third of roughly 11 million uninsured individuals who are eligible for Marketplace coverage, buying insurance could actually save them money. Most of these uninsured who would save money by getting covered are eligible for Marketplace subsidies, and their share of the bronze-level plan premium would be less than the cost of the penalty. (Some of these would find a better value in a silver-level plan, though, where the monthly premium is higher but the deductible and co-pays are lower). For the other two-thirds of the 11 million, the penalty will cost less than insurance. Paying the penalty and remaining uninsured could expose individuals to far higher costs if they face an unexpected medical emergency without coverage.

Second, consumers will generally learn about any penalty they owe at tax time. For anyone who does their taxes after the January 31st end of open enrollment, it will probably be too late to buy coverage and avoid the penalty for the following year. In 2015, tax filers in this position were given a special enrollment period, so they could get coverage a bit late and avoid a big penalty in the next year. But federal regulators say they will not allow a late sign-up period for people subject to the penalty in 2016. If they stick to that position, people filing taxes who are shocked by the penalty amount for having been uninsured in 2015 and want to buy coverage going forward may find they are too late, and locked out of enrollment until 2017.

If awareness about the penalty is low, it could also lead to unpleasant surprises at tax time. As the penalty increases in 2016, it may become an increasingly significant factor in a family’s decisions and calculations regarding the purchase of insurance.

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