Think Twice Before You Pay Obamacare’s Penalty


ImpedeA couple of weeks ago I was called, by an over-zealous insurance company marketer, and encouraged to advise my clients to ignore the new Essential Benefit Plans from Obamacare and just pay the Penalty in 2014.

Last week I read a synopsis of a survey about Obamacare’s penalty.  Apparently, 2/3 of Americans are ready to ignore Obamacare’s penalty for not buying an Essential Benefit Plan in 2014.  They feel that it will be cheaper for them to just pay the $95 per person penalty and save the money they would need to spend for health insurance.

If that were all there was, I might be tempted to agree with their decision.  However, there is more to the story than a nominal $95 penalty.

READ THE FINE PRINT

The same clause that authorizes the $95 per person penalty for 2014 also says, “… or 1% of household income, whichever is greater.”  That means that the penalty for a middle class couple who earn only $50,000 a years will be $500 for not buying a government approved Essential Benefit Plan rather than the $190 they were anticipating.

By 2016 the penalty for not buying an approved Obamacare plan increases to $695 per person or 2.5% of household income, whichever is greater.  The same couple would be looking to pay an additional $1,250 in “penalty” tax for 2016.

With the estimates that I have seen about health insurance premiums for next year, the penalties are still comparatively less.  Just do not allow yourself to be fooled into thinking they are nominal.

My wife and I are not in poverty, nor do we consider ourselves wealthy.  Both of us have solid, middle-class incomes.   If I do not claim all my business expenses, our household income will be around $75,000 for 2013.  If we do not buy an approved Essential Benefit Plan, we are looking at a penalty of around $1400.  That is not “Chump Change.”

SHOW SOME WISDOM

I understand that Mr. Obama has politicized health insurance over the last 4 years.  He has divided the nation by successfully driving a political wedge between those who spend money on health insurance and those who spend their money on something else and take their chances with medical bills.

Boycotting health insurance for political reasons is not wise.  Mr. Obama and his political cronies are not hurt if you elect to go without health insurance, pay his penalty and then need medical attention.

The reason why you should buy one of the Essential Benefit Plans has nothing to do with Obama’s penalty tax “that he claims is not a tax.”  You should consider sucking things up and buying one in 2014 for the same reason you bought one in 2012:  If you suffer a major accident or illness, you do not want to have to file for bankruptcy because of medical bills.

All of the details about the new Health Benefit Exchanges will not be available until later this summer.  If you wish to stay “in the know” about what is happening, what is required by you and how you can do it, click the banner below to subscribe to our agency email list.

Most importantly, however, do not boycott Obamacare for political reasons.  If you do not like the new system, express your objections with your vote.  The penalties for ignoring Obamacare can be severe.

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2 thoughts on “Think Twice Before You Pay Obamacare’s Penalty

  1. I believe the calculation of the penalties is incorrect because it neglects to adjust for the “floor”. The penalty for a couple earning $50,000 in 2014 would be $300 calculated as follows: $50,000 – $20,000 = $30,000 x 1% = $300. This is probably a lot less than what the inurance premium will be.

  2. After doing a few minutes of research I found that the IRS is assuming that the average cost of the cheapest family plan in 2016 will be $20,000. The IRS calculated a projected penalty of only $2,400 for a family of 5 with income of $120,000. The calculation is shown below.

    “(i) In 2016, Taxpayers H and J are married and file a joint return. H and J have three children: K, age 21, L, age 15, and M, age 10. No member of the family has minimum essential coverage for any month in 2016. H and J’s household income is $120,000. H and J’s applicable filing threshold is $24,000. The annual national average bronze plan premium for a family of 5 (2 adults, 3 children) is $20,000.
    “(ii) For each month in 2016, under paragraphs (b)(2)(ii) and (b)(2)(iii) of this section, the applicable dollar amount is $2,780 (($695 x 3 adults) + (($695/2) x 2 children)). Under paragraph (b)(2)(i) of this section, the flat dollar amount is $2,085 (the lesser of $2,780 and $2,085 ($695 x 3)). Under paragraph (b)(3) of this section, the excess income amount is $2,400 (($120,000 – $24,000) x 0.025). Therefore, under paragraph (b)(1) of this section, the monthly penalty amount is $200 (the greater of $173.75 ($2,085/12) or $200 ($2,400/12)).
    “(iii) The sum of the monthly penalty amounts is $2,400 ($200 x 12). The sum of the monthly national average bronze plan premiums is $20,000 ($20,000/12 x 12). Therefore, under paragraph (a) of this section, the shared responsibility payment imposed on H and J for 2016 is $2,400 (the lesser of $2,400 or $20,000)

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