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California health insurance  -  Health Reform Questions  -  penalty for not getting coverage

What Is The Penalty For Not Buying Health Insurance?


We wrote about the carrot for purchasing California health insurance through the Exchanges.  Now, let's talk about the stick...the Penalty for not purchasing health insurance.  Part of health reform mandates the purchase of health insurance for most people and it creates both subsidies to help purchase it for those individuals up to 400% of the federal poverty level (about $93K for a family of four) and penalties for those individuals who choose not to purchase health insurance across all income levels.    We now have these penalty levels for Californians.

Slow start but then ramping up

The real push of California health reform will begin Jan 1st 2014 when the Exchange is up and running (actually accepting applications October 1st, 2013).  It makes sense that the penalties will also begin in 2014.  Here's the broad strokes of what to expect.

  1. 2014  $95/annual penalty or 1% of taxable income, whichever is greater
  2. 2015  $325/annual penalty or 2% of taxable income, whichever is greater
  3. 2016  $695/annual penalty or 2.5% of taxable income, whichever is greater
  4. 2017 and out  Amounts adjusted in the out years based on cost of living index

We still do not have details on the  mechanics of the penalty but it's expected to be a tax time concern (accounted for during your tax filing) as opposed to the subsidies which will be accounted for at the time of enrolling.  It will be interesting to see how this is assessed for individuals that do not file taxes.  We're still expecting guidance on how the penalty will be administered. 

The flat dollar penalty is per person in a family up to 3 family members.  There is no per person cap on the percentage based penalty and it applies to the family income however it is constituted up to the cost of a Bronze level plan in the Exchange. 

Who is not subject to the mandate?

Different situations can make a person exempt  from the California individual health insurance mandate.

  1. Based on religious beliefs
  2. non legally residing in the United States
  3. Incarcerated
  4. Does not make the legal minimum to file tax returns
  5. Unable to afford eligible coverage based on guidelines
  6. Receives hardship qualification for Secretary
  7. Does not reside in the U.S. or resides in a possession of the U.S.

So what do we make of the penalty levels?

Once criticism of the Health Reform bill's ability to remain solvent is the so-called "weak mandate".  This refers to the small penalty ($95 in first year) applied versus the potential premium a person would pay on the market.  For example, let's say you have a 45 year old make who makes $45K annually (no or little subsidy).  Let's say that person is currently uninsured since our stated goal is to get everyone on board.  That person can either pay the 1% penalty ($450 for the year) or pay roughly $300/monthly ($3600 annually).  Given the choice of $3600 in premium or $450 in penalty, he may go uninsured.  There in lies the issue.  Granted, for people that make less, they will get subsidies but the penalty also goes down accordingly since it's based on income.  We'll have to see how this plays out but we want to avoid Adverse Selection resulting from a weaker mandate.  The Open Enrollment window for California health reform plans may also help to buttress this mandate although money usually dictates decisions on this front.


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