It’s the third year of open enrollment under Affordable Care Act’s (ACA) provisions and unlike the previous two years, the millions of people who will not get enrolled, will have to pay much higher penalties in their 2016 tax returns. Similarly, employers not offering minimum essential coverage with minimum affordable cost will also have to pay hefty penalties.
The tax penalty created by the government, and promoted by the Supreme Court will push people to obtain health coverage in order to avoid such sky rocketing penalties. The major goal of implementing ACA and proving its financial viability will only get accomplished if majority of Americans get coverage. Or else people will only buy coverage when they get sick.
Though, many Americans are exempted from the tax or the shared responsibility payment, but the ones who did not have the coverage, were subjected to pay relatively smaller penalties when the ACA marketplaces first went online in 2014. During that period, an individual without coverage had to pay the larger of $95 or 1% of income over $10,000 and that amount was even capped at $2,448. It cannot be said as to how many people will have to pay penalty until the 2014 tax returns processing is completed by the IRS.
However, for the year 2015, the penalties have been raised to $325 per individual and $162.5 per child with family cap of $975 or 2% of the total countable income (whichever is greater) with an overall cap of $2,484 per individual upto $12,420 for a family. People who do not have an adequate coverage and are not exempted from the tax will pay the penalties in their tax returns for year 2015.
While these penalties are for those without a coverage in 2015, the penalties for those who will go without coverage in 2016 will be much much higher if they are not exempted. It will be $695 per adult and $347.5 per child up to a family cap of $2,085 or 2.5% of countable income (whichever is greater) with expected overall maximum of $2,676 per individual and up to $13,380 per family.With higher penalties, people will preferably like to buy health insurance instead of paying heavy penalties while remaining out of coverage.
Dovetailing the above, it can be said that the soaring penalties for not getting coverage may encourage more Americans to buy insurance as paying penalties and still remaining uninsured is anyway a bad idea! And getting affordable coverage can benefit people not just in time of medical crisis, but can also help them manage finances effectively.