So the health insurance bills have passed and now all US citizens are required to have health insurance by 2014 or face penalties on federal income tax returns. How much you ask? Good question. The penalty for not having health insurance will be the greater of (1) a flat dollar amount or (2) a percentage of your household income, both of which will be phased in over the course of three years…

2014 - $95 per adult or 1%

2015 - $325 per adult or 2%

2016 - $695 per adult or 2.5%

Notice that is per adult. For uninsured minors the amount is one-half the adult fine. In addition, the flat dollar amount per family is capped at three times the adult fine for the year.

Let’s look at an example of how much this would cost. Say that Jane Doe earns $100,000 per year, is married with two children, and is the sole breadwinner. The Doe’s flat dollar penalty for 2014 would be $285 ($95 x 2 plus $47.50 x 2). Their income percentage amount is $1,000 (1% of $100,000). Because the income-based penalty is greater, they would owe a tax penalty of $1000 in 2014 for not having health insurance. In 2016 the Doe’s tax penalty would be the greater of $2,085 ($695 x 2 plus $397.50 x 2) or 2.5% of $100,000 which is $2,500. The Doe’s would therefore owe $2,500 per year for not getting health insurance.

Weighing the tradeoff

Obviously many people will decide not to buy health insurance and pay the tax penalty instead. Assuming good health and rare doctor visits, annual health care costs (including the tax penalty) might be much less than the cost of buying health insurance. Then in the event of serious illness or injury, health insurance can be purchased at that time since as of 2014 the legislation will prohibit insurance companies from denying applicants because of pre-existing conditions.

What makes sense for you, buying healthcare insurance or paying the penalty? Give us a call. We can look at your specific situation and help you make an informed decision.