The ACA Penalty in 2016 Will Be 5 Times What It Was in 2014

Average Obamacare individual mandate penalty will be nearly $1000 in 2016
Still uninsured? The average Obamacare penalty in 2016 is projected to be 5 times what it was in 2014. Tetra Images/Getty Images

One of the most controversial aspects of the Affordable Care Act is the shared responsibility provision, often referred to as the individual mandate penalty. The ACA requires most individuals to maintain health insurance coverage or pay a penalty.

This caught some people unawares when they filed their 2014 tax return - they found out the hard way when they realized they owed a penalty for not having had health insurance in 2014.

Since open enrollment for 2015 had already ended before many Americans filed their tax returns for 2014, the government granted a one-time special enrollment period in the spring of 2015, allowing people another chance to enroll in 2015 coverage if they had just found out about the penalty when they filed their taxes.

At this point, as we close out the second full year of ACA implementation, awareness of the shared responsibility provision is much higher than it was prior to 2014. But what people might not understand is how much more significant the penalty gets as time goes by.

Average penalty in 2014 was $200

The IRS reported that the average tax filer who owed a shared responsibility provision penalty for 2014 had a penalty amount of about $200. That's based on the fact that the penalty in 2014 was the greater of $95 per uninsured adult (half that amount for a child), OR 1% of household income above the tax filing threshold.

But the penalty will be significantly higher for people who remained uninsured in 2015, and it will jump again for people who don't have health insurance in 2016. 

2015 is nearly over, but we won't know exactly how much the actual average penalty for 2015 is until tax returns have been filed for the year (the IRS released the 2014 data in July 2015).

And we won't know how much people pay in penalties for 2016 until after those returns are filed in 2017. But we can estimate, and the estimates confirm that remaining uninsured is going to be significantly more expensive next year. 

Penalty expected to be 5 times higher by 2016

A Kaiser Family Foundation analysis indicates that the average penalty for 2015 will be $661 per tax household for people who remained uninsured this year and are "marketplace eligible" (for that group, the analysis excluded people who are eligible for Medicaid, in the coverage gap because their states haven't yet expanded Medicaid, or eligible for coverage through their employers).

And if those households continue to be uninsured in 2016, the average penalty they'll pay when they file their 2016 tax returns will be $969. Nearly a thousand dollars, and it doesn't buy anything at all... people who owe the penalty are still uninsured and have no safety net if they end up needing significant medical care during the year. 

The actual penalty amount will vary depending on household size and income (you can calculate the penalty for your specific situation), but the calculations used to determine the penalty in 2015 and 2016 result in much higher total penalties than in 2014:

  • In 2015, the penalty is the greater of $325 per uninsured adult and $162.50 per uninsured child (up to a maximum of $975 per household), OR 2% of household income above the tax filing threshold. 
  • In 2016, the penalty is the greater of $695 per uninsured adult and $347.50 per uninsured child (up to a maximum of $2,085 per household), OR 2.5% of household income above the tax filing threshold.

Penalty deducted from refund

If you get a refund from the IRS at tax time, the shared responsibility penalty will be subtracted from your refund. 80% of tax filers get a refund, which has averaged about $2,800 in recent years - more than enough to cover the average penalty owed by uninsured tax filers.

Get covered instead

If you're uninsured and considering remaining that way in 2016, make sure you know how much your penalty will be when you file your taxes in the spring of 2017. Particularly if you're eligible for a premium subsidy through the exchange, you may find that the penalty amount you'd otherwise have to pay would be enough to cover several months of subsidized health insurance premiums - instead of just paying a penalty and getting nothing at all in return.

Open enrollment ends on January 31, so if you want to get coverage for 2016, make sure you enroll by the end of January. Enroll through the exchange if you qualify for a subsidy, or if you think there's a chance your income might make you subsidy eligible at a later point in the year. But if you're certain there's no chance you'll be eligible for a premium subsidy in 2016, you can also consider off-exchange plans (subsidies are available if your income doesn't exceed 400% of the poverty level, which is $97,000 for a family of four).

If you enroll in a plan by December 15, you'll have coverage effective January 1. If you enroll between December 16 and January 15, you'll have coverage effective February 1. And if you enroll between January 16 and January 31, your coverage will be effective March 1. The shared responsibility provision allows a gap in coverage of less than three months, so even if your coverage doesn't take effect until March 1, you'll be exempt from the 2016 penalty as long as you maintain coverage for the remaining ten months of the year.

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