Do I Still Need Health Insurance
While it is your decision to purchase health insurance or not, it is a great peace of mind to have it. While health insurance premiums can be expensive, medical costs can be devastating.
Also, even though the individual mandate is no longer in play, there are still tax benefits to having health insurance.
No Longer A Federal Penalty But Some States Impose A Penalty On Residents Who Are Uninsured
Although there is no longer an individual mandate penalty or Obamacare penalty at the federal level, some states have implemented their own individual mandates and associated penalties:
Vermont enacted legislation to create an individual mandate as of 2020, but lawmakers failed to agree on a penalty for non-compliance, so although the mandate took effect in 2020, it has thus far been essentially toothless . Vermont could impose a penalty during a future legislative session, but the most recent legislation the state has enacted calls for the state to use the individual mandate information that tax filers report on their tax returns to identify uninsured residents and provide targeted outreach to help them obtain affordable health coverage.
Exemptions For Unaffordable Coverage Through Mnsure
You can claim this exemption based on coverage being unaffordable for the months in 2018 when you did not have coverage when you fill out your 2018 tax return, which was due in 2019.
You can claim this exemption using the federal Form 8965. You will need to use the following information from MNsure to complete this form:
- The premium amount for the lowest cost 2018 bronze plan that would have covered all members of your household seeking an exemption and
- The premium amount for the second-lowest cost 2018 silver plan that would have covered all members of your household seeking an exemption.
This information is easy to find using the instructions below.
NOTE: If you are applying for an exemption for unaffordable coverage from your employer, you do not need any information from MNsure. You will need to follow the directions on the federal exemption application to submit information about your employer’s plan. You can claim this exemption when you file your taxes using the federal Form 8965.
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Employer Mandate Penalty Amounts And Processes
Examples of employer penalties
1,200 full-time employees
Employer offers coverage, but coverage is not affordable and/or doesn’t provide minimum value
The penalty is triggered if one employee purchases coverage on the Marketplace and receives a federal premium subsidy
250 employees purchase coverage on the Marketplace and are eligible for a subsidy
Lesser of $2,570 per full-time employee, minus the first 30 employees, or $3,860 per full-time employee receiving a federal premium subsidy
1,170 x $2,570 = $3,006,900 penalty
250 x $3,860 = $965,000 penalty
Here is a snapshot of the penalty assessment process:
Employer offers health coverage compliant with the employer mandate
Employer reports coverage offer and respective data during the applicable tax season
IRS sends Letter 226J, with an Employer Shared Responsibility Payment assessment based on the data they have processed
IRS sends Notice 220J, confirming the final penalty amounts owed, which could state no amount is owed after final audit review.
Read more about employers’ options on the IRS web page, Employer Shared Responsibility Payment Q& As, questions 55-58.
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What Happens In America If You Have No Health Insurance
If that happens, some people will go without care. Others will show up at hospitals, but wont be able to pay their bills. As a result, the uninsured are more likely to be contacted by collection agencies, as they face problems paying both medical and non-medical bills.
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Avoiding The Health Insurance Penalty
The easiest way to avoid paying the health insurance penalty is to enroll in qualifying health coverage. The reason you need a qualifying health plan is that, without one, you may still have to pay a fine.
You can learn more about qualifying health coverage here, but all individual health insurance plans will be considered qualifying coverage if purchased through the health insurance marketplace. If you are purchasing health insurance outside the marketplace, make sure your plan meets the minimum essential coverage outlined in Obamacare.
Proof Of Coverage Provided By Your Health Plan
Health insurance plans will provide documentation to clients to prove they have the minimum coverage required by law. When you file your tax return you will have to enter information about your coverage status, or if you were eligible for an exemption, on your tax return. Insurers will provide a notice to you by January 31 that describes your coverage status during the previous year.
Connect for Health Colorado customers can review the Taxes Frequently Asked Questions to learn more about the form they will receive as proof of insurance.
The federal government oversees the enforcement of the mandate. Please contact the Internal Revenue Service for more information.
© 2021 colorado.gov/health All rights reserved
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Exemptions From The Insurance Requirement
Though most people are required to have health insurance, several groups are exempt from the requirement to obtain coverage, including but not limited to:
- people who are uninsured for less than 3 months of the year
- people who would have to pay more than 8% of their income for health insurance
- people with incomes below the threshold required for filing taxes.
- members of a federally recognized tribe or anyone eligible for services through an Indian Health Services provider
- members of a recognized health care sharing ministry
- members of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
- people who are incarcerated, and not awaiting the disposition of charges
- people who are not lawfully present in the U.S.
- people who qualify for a hardship exemption
Coloradans who want to apply for an exemption should submit the appropriate form to the federal government to receive an exemption code. Then Coloradans will need to provide the exemption code into the Connect for Health Colorado website to gain access to catastrophic health plan options.
Get more information about how to apply for an exemption to the individual mandate in Colorado.
The Cost Of Going Without
Even workplace coverage wherein employers subsidize part of the premium is becoming expensive.
While your workplace plan will likely spare you from a state-level penalty, that’s not the case for short-term or “skinny” plans available for individuals.
These states want people to have qualifying health coverage that is, they must cover a range of services, including prescription drugs, doctors’ services and more.
Comprehensive employer-sponsored plans, coverage purchased on health exchanges, Medicaid and Medicare tend to fit the bill.
“Short-term policies aren’t an issue in these states, in terms of being qualified coverage,” said Jennifer Tolbert, director of state health reform at Kaiser Family Foundation.
Indeed, consumers can’t buy short-term plans in California, New Jersey, Rhode Island and Massachusetts. Meanwhile, Washington, D.C. and Vermont limit short-term plans to only three months.
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Health Insurance Penalty Calculator
Thankfully, the internet is a wonderful place fool of many tools that make our lives easier. If you still arent sure how to calculate what your health insurance penalty for 2017 may be, you can use our simple health insurance tax penalty calculator.
There is step by step directions that will easily allow you to calculate your tax penalty, just make sure you know what year you are filing for, your household income, how many people in your household, and how many months you were uninsured for.
Do Not Go Uninsured Get Alternative Insurance Coverage
If you missed medical policies in 2018, alternative health insurance is not compliant with the ACA and therefore do not qualify as the minimum essential coverage. They do provide a range of benefits, however, mainly for unexpected medical care. Get a quote online and enroll since these plans are not subject to open enrollment.
Why The Federal Government Had A Penalty
The individual mandate was incorporated into the law because of a problem in the private health care industry. The problem was that the older demographic was the only one buying health insurance.
Health care for somebody over the age of 50 is likely to be more expensive than somebody who is under 30. The problem that came up was that the cost of insurance premiums was rising so quickly because the insurance industry couldnt make a profit.
As a part of the legislation, it was agreed that an incentive to get more young, healthy people to purchase health insurance would lower the cost of health insurance.
This is because, while insurance companies would lose money on older patients, the young population would be able to front the cost.
Exemptions From Health Insurance Requirement
There are a number of exemption provisions under which you may avoid the requirement to have health insurance. These provisions include:
- Unaffordable careif minimum coverage would cost more than 8 percent of your household income, you may qualify for an exemption.
- No tax filing requirementhaving an income below the Internal Revenue Service’s filing threshold exempts you from the coverage requirement.
- Hardshipif you experience a hardship that prevents you from getting coverage, the Health Insurance Marketplace may certify your exemption. Situations include those whose pre-existing health coverage was canceled due to the ACA.
- Short coverage gapsif your coverage lapses for less than three consecutive months, you will not be charged a fee for the uninsured time.
- Membership in an exempt groupNative American tribes, prisoners, undocumented immigrants, members of health care sharing ministries and those whose religious beliefs prevent them from having insurance are exempt from the requirement to be insured.
Not sure if you are exempt from the tax penalty or from the requirement to purchase health insurance? See “Are You Exempt From Health Care Coverage?” to help determine whether you might be eligible to waive the tax penalty entirely and apply for a health care exemption.
What If You Go Without Health Insurance
Some level of coverage should be your goal, despite no penalty. Consider a fixed-benefit indemnity plan or a short term medical plan, to help you if you experience unexpected illness or injury. Evidence does suggest that uninsured people are less likely to get healthcare than those who are insured.
Even if they do, they pay much more. Kaiser Family Foundation research found that 23% of people without insurance postponed their medical care because of cost, while only 9% on Medicaid or another public plan did it. Furthermore, 20% of people without insurance went without care because of its cost, compared to 8% of those covered with Medicaid.
Why Have An Individual Mandate
These states have an individual mandate for the same reason the ACA originally did. Without an individual mandate, people would only buy insurance if they knew they were going to need it. Most often, this means the elderly and people with pre-existing conditions.
But those who use their health insurance the most are also the most expensive to insure. Before the Affordable Care Act, insurance companies would evaluate all applicants before enrolling them. Based on peoples age and medical history, the insurance companies would then deny them health care coverage, or charge them more for it. But the ACA made that kind of discrimination illegal. And then it took things one step further. An individual mandate is an incentive for everyone to get health insurance, even healthy people. That meant there was now a larger pool of people applying for health insurance. And with more healthy people getting health insurance, health insurance companies could lower premiums for everyone.
In other words, the individual mandate was meant to be one of the of cost-savings and consumer protections we associate with the ACA. It allows more people to be insured at a lesser rate per person. Even though there is no national individual mandate anymore, some states have passed their own mandates to help keep more people insured at lower costs per person. If the mandates help more people get insured, taxpayers in these states will have lower monthly premiums on average.
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Additional Details On The Employer Mandate
Employers with 50 or more full-time and/or FTE employees must offer affordable/minimum value medical coverage to their full-time employees and their dependents up to the end of the month in which they turn age 26, or they may be subject to penalties. The amount of the penalty depends on whether or not the employer offers coverage to at least 95% of its full-time employees and their dependents.
Employers must treat all employees who average 30 hours a week as full-time employees.
Dependents include children up to age 26, excluding stepchildren and foster children. At least one medical plan option must offer coverage for children through the end of the month in which they reach age 26. Spouses are not considered dependents in the legislation, so employers are not required to offer coverage to spouses.
Assume each employer has 1,000 full-time employees who work at least 30 hours per week.
The regulations allow various calculation methods for determining full-time equivalent status. Because these calculations can be complex, employers should consult with their legal counsel.
Here are some considerations to help determine how part-time and seasonal employees equate to full-time and FTE employees.
U.S.-issued expatriate plans meet the employer mandate.
Effective July 16, 2014, the employer mandate no longer applies to insured plans issued in the U.S. territories . A territory may enact a comparable provision under its own law.
Effects On Insurance Premiums
The elimination of the individual mandate penalty in 2019 contributed to higher individual market premiums for 2019, because insurers expected that the people likely to drop their coverage after the penalty was eliminated would be healthy, whereas sick people will tend to keep their coverage regardless of whether there’s a penalty for being uninsured.
The penalty’s original purpose was to encourage healthy people to join the risk pool, as a balanced risk pool is necessary for any health insurance product to function.
According to rate filings for 2019 plans, average premiums would have for 2019 if the individual mandate penalty had remained in place .
The primary reason average premiums increased instead of decreasing for 2019 was the elimination of the individual mandate penalty, along with the Trump administration’s efforts to expand access to short-term health plans and association health plans.
Those plans appeal to healthier individuals, so their expansion has the same effect as the penalty repeal, in terms of reducing the number of healthy people who maintain ACA-compliant individual market coverage. Note that although average benchmarkpremiums decreased slightly in 2019, overall average premiums did increase that year.
But because the ACA’s premium subsidies adjust to keep coverage affordable even when premiums increase, the majority of people who buy health plans in the exchanges have continued to do so.
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What Is Exemption Type G On Form 8965
Exemption Code G covers a few situations:
- The total insurance cost exceeds 8.05 percent of your household income
- Your state didnt expand its Medicaid coverage beyond families with household income below 138 percent of the poverty level
- You or a family member had a hardship that made it impossible to secure coverage
Will The Irs Penalize For No Health Insurance
The federal tax penalty for not being enrolled in health insurance was eliminated in 2019 because of changes made by the Trump Administration. The prior tax penalty for not having health insurance in 2018 was $695 for adults and $347.50 for children or 2% of your yearly income, whichever amount is more.5
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Vermont Enacted A Mandate But Opted Not To Impose Any Penalty For Non
Vermont enacted legislation in 2018 to create a state-based individual mandate, but they scheduled it to take effect in 2020, instead of 2019, as the penalty details werent included in the 2018 legislation and were left instead for lawmakers to work out during the 2019 session. But the penalty language was ultimately stripped out of the 2019 legislation and the version that passed did not include any penalty. So although Vermont does technically have an individual mandate as of 2020, there will not be a penalty associated with non-compliance .
What Was The Purpose Of The Individual Mandate
The idea behind the individual mandate was to protect against whats known as adverse selection in the United States insurance market. That means without a mandate, a high percentage of the people who enroll in health insurance plans know they are going to utilize a lot of healthcare services. For example, the elderly and people with existing health conditions.
Since these kinds of people are expensive to insure, pre-ACA, insurance companies would either deny health benefits to those with pre-existing conditions or charge higher premiums based on age and medical history. The ACA not only made it illegal for insurance companies to deny coverage to those with pre-existing conditions, but used the individual mandate to make the pool bigger for who is insured. In other words, the individual mandate ensures that healthy people also get healthcare coverage. This lets health insurance companies lower insurance premiums for everybody.
Combined with the cost-savings and tax credits built-in to the ACA, the individual mandate changed the healthcare system by allowing more people to be insured at a smaller expense. And with everyone insured, American taxpayers werent footing as many medical bills belonging to those who were uninsured and could not pay for their care.
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