Millions of Americans face a dilemma every fall: Buy health insurance coverage or pay the Obamacare tax penalty?
That calculus is even more complicated this year. Senate GOP lawmakers have scrapped the individual mandate in their latest tax plan, which — if signed into law — may mean there would be no fine for going without insurance.
Estimates suggest that the elimination of the individual mandate would lead to 13 million more uninsured, save the Treasury $338 billion, and possibly ease your tax burden by a thousand dollars or so. At the same time, premiums would rise as healthy, younger people leave the exchanges and insurers abandon whole swaths of the country.
For 2018, however, nothing has changed. If you don’t purchase health insurance you’ll likely owe Uncle Sam a fee come tax time. Here’s what you need to know.
How big is the Obamacare penalty?
To get a sense of what you’d owe, let’s examine the 2017 Obamacare tax. You either pay $695 for every uninsured adult and $347.50 for each child, or 2.5 percent of your household income, whichever is greater.
What does that mean for you? Let’s say that you are single parent with one child earning $50,000, and didn’t pay for health insurance. Your tax bill would amount to $1,042.50, according to this IRS online tool. Tough to swallow, right? But that’s about $5,500 less than what you would have paid in premiums for a Bronze plan, not including deductibles or copays. (That’s based on a national average price, rather than the price for a specific location.)
You may reason that you’re better off sticking that extra money into a high-yielding savings account and pay for any medical bills out of pocket. But don’t forget about help from the feds.
How big is my Obamacare subsidy?
The Affordable Care Act works as a three-legged stool: Insurers can’t charge for pre-existing conditions, everybody is forced to buy insurance, and tax credits helps offset the cost of insurance for lower-income citizens. All three factors work together to help make healthcare more affordable.
Our theoretical single-parent family with one child and gross income of $50,000 would qualify for thousands in financial assistance for health insurance, thanks to Obamacare tax credits. This family would face annual premiums of only $2,401, according to the Kaiser Family Foundation.
While that’s still nearly $1,400 more than what they would pay in fines, the family would be getting health insurance covering essential benefits, such as emergency care and hospitalization.
What should you do?
Everyone’s different. A single person without children earning $50,000 in Topeka wouldn’t receive a subsidy. He would negotiate between paying $984 in fines, or $3,318 for insurance. A young healthy person may opt for the former.
But a large share of those currently uninsured wouldn’t need to shell out a lot to buy insurance.
The Kaiser Family Foundation estimates that of the 7.7 million who are uninsured and subject to the tax, 6.3 million could receive some financial assistance. More than half of those people would see a subsidy so large that it would completely cover the cost of a bronze plan, while another one in six could buy the same plan for less than what they would pay in fines.
These factors may be why sign-ups for coverage on the individual marketplace have dramatically beaten expectations, despite the Trump administration’s move to cut open enrollment period in half (you have until Dec. 15) and use fewer resources for outreach.
Your first step is to go to www.healthcare.gov, put in your information, and see how much different plans would cost (especially after any subsidies are included.) Compare that to how much you’d owe in taxes by not getting insurance.
Go back over your records and take note of every time you’ve used health care, from doctor visits to root canals, and then contact local providers in your area to see how much those same services would cost without insurance.
Add up those costs, add it to your increased tax liability, and see how much you’d owe. Chances are you’re better off with some insurance.