If you’re one of the people out there planning to give President Obama’s health reform law the middle finger by not purchasing health insurance, that decision could cost you.
To encourage people to sign up for health insurance, the Affordable Care Act carries a penalty (which the Supreme Court officially dubbed a tax) for those who remain uninsured. Those penalties start out small but could rack up to hundred if not thousands of dollars. Up to 6 million people could be slapped with the fine by 2016, generating nearly $7 billion of revenue for the federal government according to the Congressional Budget Office.
So how does it work exactly? Adults who are uninsured (single or in families) will pay the greater of two fees, either a flat fee or a percentage of their income. The penalties are pro-rated, so if you gain or lose coverage for part of the year, you are only liable for the time you are uninsured. Additionally, if you lack coverage for less than three months, you won’t be charged the fee.
The key is that the penalties start out small but grow over time, as you can see in the chart below. So what’s the upper limit? The fines cannot be greater than the national average premium for a “bronze” plan on the state-based exchanged. The bronze plan carries the lowest insurance premium.
The fees are assessed when filing your income taxes, so many who aren’t eligible to file a tax return will likely be unaffected. Also, people who would have to pay more than 8% of their income for health insurance and poor adults who live in states that are not expanding Medicaid also aren’t subject to the penalty.