The Consequences of Not Carrying Coverage under the Affordable Care Act

By Lisa Yagoda, Nicole Duritz, Joan Friedman

Copyright © 2014 AARP. All rights reserved.

If you aren’t exempt under the Affordable Care Act and you choose not to secure insurance coverage, you face tax penalties starting in 2014. In addition, you will have to pay all your health care costs and risk accruing debt and not receiving good health care. Medical expenses prompt most personal bankruptcies in the United States.

You may be assessed a tax penalty if you go without coverage for three or more consecutive months during the year. You’re allowed to have one gap in coverage that lasts up to three months. If you have more than one such gap during the year, you’re penalized for the subsequent gaps.

Keep in mind that this provision also applies to children. If you’re a parent or can otherwise claim someone as a dependent on your federal income tax return, you owe the tax penalty for your dependent who doesn’t have insurance coverage (or isn’t part of an exempt group).

You are charged the higher of these two amounts:

  • A percentage of your annual household income: This fee is determined based on the number of months during the year that you go without coverage (or without an exemption). You pay the fee when you pay your federal income tax.

    In 2014, this fee equals 1 percent of your household income (minus the federal tax filing threshold, which, in 2014, is $10,000 for an individual or $20,000 for a couple filing jointly). The percentage is set to increase each year so it becomes a bigger deterrent to ignoring the law. In 2015, it equates to 2 percent of your household income, and in 2016, it increases to 2.5 percent.

  • A flat rate: This rate is also assessed on a monthly basis and is set to increase each year. In 2014, the flat rate equals $95 per person, per year, and $47.50 per child under 18 per year. Per family, the 2014 cap is $285 per year. You pay according to the number of months you lack coverage or an exemption during the year. (You’re allowed one gap of up to three months before you need to pay the penalty.)

    The flat rate jumps substantially after 2014. For example, in 2015, the family penalty is $975; in 2016, it’s $2,085. Again, the idea is to increase tax penalties over time to encourage the greatest possible participation in sharing healthcare costs.

Regardless of which amount is higher, your tax penalty is capped at a dollar figure equivalent to that year’s national average annual premium for the lowest-cost bronze plan on the Health Insurance Marketplace

But you want to keep something else in mind: Even if you pay a tax penalty for not securing coverage (or an exemption), you are still on the hook for medical expenses you incur while you lack coverage. Your tax penalty doesn’t constitute insurance coverage.

Obviously, if you don’t currently have the minimum essential insurance coverage the ACA requires, your best bet is to get obtain coverage. If you qualify for an exemption, apply for it (unless your income is low enough that you don’t file federal income taxes).

If you aren’t exempt, go on the Marketplace and get coverage. If the cost of buying insurance is too high, keep reading to find out what help is available — and keep the costs of not buying insurance clearly in sight.