Obamacare and the Individual Mandate

The health care coverage mandates under the Affordable Care Act are scheduled for January 1, 2014.  So what will it mean for individuals? There are penalties and “carrots” associated with the looming health care changes.

Starting in 2014 if your employer doesn’t offer insurance, you will be able to buy it directly from an affordable insurance exchange. An “exchange” is a supposedly transparent and competitive insurance marketplace where individuals and small businesses can buy affordable and qualified health benefit plans. Exchanges will offer a choice of health plans that meet certain benefit and cost standards.

As an individual who needs health care, in addition to the incentives offered by your employer if you are employed, there are incentives for you to obtain adequate health insurance.  Beginning in January 2014, insurance companies will be prohibited from refusing to sell coverage or renew policies based pre-existing conditions or from charging higher rates based on gender or health status. Additionally, depending on your income, advanceable tax credits will be available on qualified insurance coverage. The advanceable tax credit will lower your monthly premium payments so that you will not have to wait for the tax season to arrive to realize the benefit. This is the carrot.

Here’s the penalty: unless you meet the criteria for an exemption, you’re going to pay Uncle Sam if you don’t have health insurance. This is the “individual mandate.” The imposed fee is intended to help offset the costs of caring for uninsured Americans. Exemptions from the individual mandate for obtaining health insurance include religious reasons or where the least expensive health insurance policy available exceeds 8% of income. Unpaid fees may result in IRS tax problems since the IRS will be charged with collection.

If you don’t meet the criteria for an exemption, and you choose to not obtain health insurance, you will pay Uncle Sam nonetheless. The amount is tiered year to year beginning in tax year 2014. For year 2014, if you don’t have qualified health coverage, the minimum fee will be the greater of 1% of your annual income or a flat amount of $95. In tax year 2016, this penalty will increase to the greater of 2.5% of your annual income or a flat amount ranging from $695 to $2,085, depending on your household size. After year 2016, the penalty will be increased annually by the cost-of-living adjustment.