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June 2, 2016

Obamacare: Penalties that Pack a Punch in 2016

by Team Rowling

The Affordable Care Act (ACA), also known as Obamacare, represents the largest reform of healthcare in the history of the United States. The ACA is comprised of over 109 regulations spanning an excess of ten thousand pages.

Affordable Care Act Warning Sign, Yellow warning road sign with word Affordable Care Act with stormy sky background

There are few people who have read it cover to cover and even less that fully understand it

However, if you boil it down to the simplest terms possible, the ACA wants you to obtain minimum essential health coverage. Let me rephrase, the Affordable Care Act REQUIRES you to obtain minimum essential coverage via the individual shared responsibility fee.

2016 will be the first year ACA penalties will hit hard enough to motivate.

Since 2010, the incentive to enroll in Obamacare has been rather benign. In 2015, the minimum penalty was the greater of $325 per adult and $162.50 per child or 2% of household income, up to a maximum of $975 per household.

In 2016, the minimum penalty will jump to the greater of $695 per adult and $347.50 per child or 2.5% of household income, up to a maximum of $2,085. Thus, it seems that 2016 will be the first year where penalties may outweigh the cost of minimum essential coverage.
2016 marks the largest and final increase of this magnitude for the ACA. Beyond 2016, penalties will only increase by the rate of inflation.

Is there any escaping these penalties?

Yes and no. In the long run, your options are limited to paying for health insurance or paying the fine. However, there is an exception for short term gaps in coverage. No penalty will apply when there is a gap in coverage of less than 3 consecutive months per year. This equates to two full months without coverage, and a third month in which you only need a single day of coverage. So if you’re in between jobs or just didn’t have coverage, the three-month exemption could reduce or eliminate your penalty.

It is increasingly important in 2016 for taxpayers to evaluate their individual circumstances, and weigh out the cost of coverage versus the penalty. The IRS reported that over 6 million people opted to pay a penalty last year averaging $200 per person. Inevitably, there will be a number of taxpayers caught off guard next tax season by these larger fines, but you don’t have to be one of them!

With this hike in penalties for 2016, the list of reasons to not enroll is shrinking.
We believe health insurance is necessary to have at all times, at least to cover catastrophic events. After all, when it comes to health insurance, we believe it’s better to have it and not need it, then to need it and not have it. For more information on this topic or to learn about your options, please contact us at Rowling & Associates.

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