The Affordable Care Act (ACA) mandates that all Americans must have health insurance coverage. You can buy the insurance yourself or accept your employer’s plan, if available. Some people with low incomes can receive coverage through state or federal insurance plans. Military veterans can get insurance through the Veterans Health Administration.
If you don’t have insurance coverage and you can afford it, you will be penalized and pay a fee in most cases. For 2016, the penalty fee is whichever is greater: 2.5 percent of your yearly household income, or $695 per adult and $347.50 per child for the year. The household maximum penalty fee is $2,085. The fee will be adjusted for inflation in future years.
You can pay the fee when you file your taxes. There are no criminal penalties for not paying the fee, but it can be subtracted from tax refunds. Another factor to consider is that you’ll have to pay your own medical bills if you don’t have health insurance.
The federal government helps pay the insurance premiums for those with lower incomes or financial hardship. This makes insurance affordable to more people. It’s helpful to know how you might be able to use tax credits to purchase health insurance and how you can avoid penalties.
The Health Insurance Marketplace is a website where you can apply for and purchase health insurance. The marketplace is also called the “exchange.” Some states have created and operate their own state-based exchanges. Other states are leaving that responsibility to the federal government. However, everyone begins the search for health insurance at the same place: www.healthcare.gov.
To find health insurance coverage, you may apply for insurance at the exchange when the open enrollment period begins. Open enrollment for 2016 started on November 1, 2016, and ends January 31, 2017. If you don’t buy insurance during an open enrollment period, you might still be able to get coverage by showing you had a major life change or that your income is low enough that you can’t purchase insurance.
Once your application is processed, you learn which insurance plans are available to you. You also find out if you are eligible for discounts, tax credits, or lower out-of-pocket costs. The application tells you if you qualify for Medicaid, a health insurance plan for low-income individuals and families.
The ACA provides a tax credit to some individuals to help pay for health insurance coverage. This tax credit is called the “premium tax credit.” You don’t have to wait to file your taxes to find out if you’ll receive this credit. You’ll find out when you apply for insurance on the exchange. You can use the credit to help pay for your insurance when you’re ready to purchase.
When you file your taxes, if you’re due a higher tax credit than you received when you applied for insurance, you will get more credit. If the tax credit you received when you applied for insurance is more than you should have received, you will have to repay that extra amount.
Insurance through work
If you have insurance through your employer, you most likely don’t have to buy insurance yourself. You just have to prove that your employer-provided insurance meets the minimum requirements. Most plans do. Your employer must give you a document called the “summary of benefits and coverage.” This will have the information about what your employer’s plan covers.
Avoiding the penalty
Your health insurance plan must meet the “minimum essential coverage” threshold to avoid a penalty. This threshold is 60 percent of the cost (on a national average basis) of your medical bills. All of the insurance policies on the exchange meet this requirement.
What insurance plans do not meet this requirement?
You may still face a penalty if one of the insurance plans below is the only health insurance plan you have:
- vision or dental insurance
- workers’ compensation insurance
- insurance coverage that only pays for treatments related to a specific condition or issue
- discount medical service plans
You may not be responsible for the penalty if:
- You are uninsured for fewer than three consecutive months in a year.
- Your application reveals that you have very low income and can’t afford insurance.
- Your income is so low that you aren’t required to file a tax return.
- You qualify under the new income limits for Medicaid, but your state hasn’t accepted the Medicaid expansion.
When you apply for health insurance coverage in the marketplace, your results will indicate any financial assistance for which you qualify.