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Health Insurance Penalties: How They May Affect You

Jun 25, 2010 Jennifer Williamson, Distance Columnist | 0 Comments

The health care bill has finally passed, and—theoretically—it’s supposed to extend coverage to millions of uninsured people as well as making it easier to buy insurance. But it’ll also financially penalize people who don’t buy insurance. According to the government, the penalties are there to make sure everyone buys into the health insurance system—even young, healthy people who currently often choose not to buy health insurance if they don’t get it from an employer.

One of the biggest criticisms of the bill, however, is that it doesn’t do enough to actively address health insurance costs. For many people, particularly those who don’t currently get insurance through employers, this brings up a big concern: will this bill simply force them to buy insurance they can’t afford, without addressing cost issues? Here are a few things you should know about the new healthcare legislation.

You have a while until it goes into effect

The full health insurance legislation doesn’t go into effect until 2014.

Medical Piggy Bank

Even with subsidies, it’s a stretch to say that health insurance will suddenly become affordable for everyone after 2014.

If you are uninsured and worried about the cost of buying health care, you won’t be forced to buy it for another few years. In addition, even once you get to 2014, you’ll only be penalized $95 for choosing not to buy health insurance—or 1% of your income, whichever is higher, as long as this amount doesn’t go higher than the cost of a basic health care plan. By 2016, the price for rejecting insurance goes up to $695 for a single adult, up to $2,085 for a household, or 2.5% of your income.

There are exceptions to the penalty rule

Not everyone will be hit with the penalty. Under the bill as it stands now, you won’t be charged a fine if:

  • You go less than three months out of a year with no insurance.
  • Your income is below a certain level.
  • The cheapest insurance around costs 8% or more of your income.
  • You’re in prison, have recognized religious objections, or are a member of a Native American tribe.

Your health insurance plan may cost more—but you’ll get more, too.

One effect of the bill is that it requires health insurance plans to offer a certain baseline of coverage. Currently, there are companies that offer bare-bones plans that cover certain costs from catastrophic illnesses and accidents only. These plans tend to be comparatively cheap. It’s likely that under the new legislation, these plans will become harder to find as companies are more strictly regulated in what their plans can cover. So you won’t be able to find the most dirt-cheap plans—but even your basic plan will cover more.

Some people—but possibly not enough—will get subsidies

President Obama tried to defuse worries over health insurance penalties by reassuring us that the government would give you a subsidy if you couldn’t afford to buy health insurance.

Exact numbers for who will be eligible for subsidies are hard to pin down. Most sources claim that subsidies would be available for those earning 133-400% of the federal poverty level. Federal poverty levels change depending on the number of people in your family and the part of the country you live in—so it’s difficult to gauge specific numbers.

No matter where you live, however, it’s looking like the subsidies will still leave many households that are far from wealthy without help on expensive health insurance bills. For instance, according to the Kaiser Foundation Subsidy Calculator, a single adult making $35,000 per year will not be eligible for subsidies on a health insurance plan that costs over $3,000 per year. Even though such a household is probably well above the poverty line in all states, $3,000 per year is not cheap.

Even with subsidies, it’s a stretch to say that health insurance will suddenly become affordable for everyone after 2014. Some households may still avoid buying health insurance even with the penalties for it, as those penalties may turn out to be less for some than buying health insurance.

And for young and healthy people, it may still be difficult to justify spending thousands per year for health insurance—even though the point of subsidies and penalties is to get these people to buy into the system. In reality, it may be that the only way to get everyone to buy into the health insurance system is to combine subsidies and penalties with real reductions in the cost of health care—reductions that will make a real difference in everyone’s budget.


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