How The Tax Penalties Work...
So it is written, so it shall be done? But will it? By IT, I mean health insurance. It is now written that you MUST have health insurance. And the Affordable Care Act has made sure that all obstacles are out of your way so that you may purchase coverage. If you cant afford it, you will be offered a government subsidy that reduces the price you pay for insurance. So, yes, it is written that everyone MUST be covered. But, what if they don't buy into this Affordable Care Act? What if Americans just don't like the thought and hassle of it all? Penalties. ♫Penalties, ♫Penalties, ♫Penaltieeeeeees.
So, how does THAT work? What IS the cost of going uninsured? I will tell ya. And ya aint gonna like it none.
For the tax year 2014, those without coverage will face a tax penalty of 1% of their annual income, or $95, whichever is greater. And a per-child fine of $47.50, up to a family cap of $285.
By 2016, the penalty, which is attached to your federal income tax, increases to the greater of 2.5% of your income OR $695 PER INDIVIDUAL. The best case scenario is $695 per person. If you're a high earner, you are going to pay 2.5% of your income. The feds set it up so that the penalty just so happens to be about the same price you'd pay for a Bronze insurance plan. So, you either pay for the coverage and have it, or you pay for the penalty which is close to the same cost of the coverage (so you lose the money anyway) and just remain uninsured, getting nothing for your money. America is very passionate one way or another about this ACA. But, it was best said by this lady:
Janet Schwartz, assistant professor of marketing at Tulane University, believes it's high time for everyone to jump into the (insurance) pool.
"Just as you can't buy car insurance the day after an accident or homeowners insurance the day after a hurricane and expect the insurer to pay for it, you shouldn't be able to buy health insurance just when you get sick," she says. "That's what the individual mandate is designed to prevent. Requiring everybody to have health insurance should lower costs for a lot of people."
The idea of health insurance mandate has been looming in the minds of politicians for quite some time, but there was no good way to make this transition, hence none of them went forth with the ideas. Well that's not the case anymore. It is no longer just an idea, its a law. It is bumpy, its full of errors and unintended consequences and loops holes and risks and uncertainties. Absolutely.
As an agent, I am not real happy with how clumsy this rollout has been, but am I happy that people are getting insurance coverage? Absolutely.
Is it easy? Absolutely not.
Do I recommend taking the tax penalty and just being uninsured? No way.
The tools are there for you to take advantage of. I didnt vote it in, in fact there was much that I said out loud (oh did I ever) that was in opposition to the way the law was written. I foresaw this wreckage. Dont believe me? Follow me on facebook and go wayyyy down my timeline.
I read the ENTIRE ACA back in 2008 when I first saw it... I mean, it was being said that if we wanted to see what was in it we would have to pass it. Not this girl. I read it. Of course, it was much scarier when it was first written, its undergone many revisions since 2008. Still scary though, still expensive for Americans overall, and still has some undesirable consequences (that's for another blog). And no, they didnt pay me to read it, I just did. I read it because I am an American & this affects me as it does you. I needed to understand who, what, when, where, how. I already understood why.
Oh. You want to know why?
The WHY is because too many people racked up health insurance bills when they got sick then didnt pay them, and nearly bankrupted hospitals and insurance companies. Private health insurance was getting too expensive because those costs the hospitals absorbed still had to be paid in order for them to stay in business... so they raised prices for those people who ARE insured, while they try to collect from the individuals who received care and didnt pay for it. It was out of control. Much like car insurance would be if it weren't mandated.
It would have been nice if everyone would have just done the right thing and gotten insurance to begin with, on their own, without being forced. If Americans had done that, we'd never have put a president in the position to force us to do it. We could have went straight to the insurance company, purchased a policy, and by all of us being covered the prices would have stayed down and we would not have the wreckage of a roll out we have now.
And we wouldn't have a tax penalty for not being insured. In fact, the IRS wouldn't be involved at all. Now they're all up in our business, comparing our taxes to our subsidy applications etc. Me, personally, I've always believed in insurance. It works. We fuss about it, we dont like to pay the premiums. But we will always get more out of it than we ever pay in. One car wreck can put the insurance company upside down on their investment in us. One trip to the ER. One birth of a child. One broken bone. One concussion. One house burned down or robbed.
I also believe we can go "insurance broke". That is why it is important to have an insurance broker on your side. Pick and choose where your greatest risks are so you can allocate your insurance dollars the best possible way. This is my plug that asks you to always consider having a local agent to advise you on which risks you should allocate your funds to. We have to find a way to fit in Health Insurance, among the others we are used to paying into. We all may need to shift our budget around a bit. Dont take the penalty. Get something for your money. That penalty really adds up to be quite a nuisance. The ACA isn't going to be overturned, the next president may fix it up a little but, it won't be taken away. Far too many Americans will be dependent on it by then.