How you can avoid the penalties related to the individual mandate

It was a political talking point / hot potato. But it’s real.
Beginning in 2014 every individual will be required to purchase health insurance. That’s a key component of the Affordable Care Act (“Obamacare”).
The good news is that insurance companies will no longer be able to decline anyone (or increase their premium) as a result of pre-existing medical conditions, which has been a real problem for a lot of people. The bad news (and it’s unfortunately a consequence of the good news) is that prices will go up. Significantly.
So what happens if someone refuses to purchase health insurance? After the jump we’ll lay it all out there for you…

There’s a fine. Frankly, it’s not a lot (compared with where we expect the premiums to be), but it increases as time goes on.
In 2014, the annual penalty for not having health insurance will be:

  • $95 per person for the individual (1/12th of this for each month without coverage)
  • $47.50 for each dependent without coverage (1/12th of this for each month without coverage)
  • These fines may not exceed $285 per year or 1% of your annual income, whichever is greater

But when you look at the math – for everyone involved that fine will really wind up being 1% of your income. (See that last bullet point — If you make more than $28,500/year, you’ll pay 1% of your income. If you make less than that, you’ll probably be on Medicaid anyway). If your income is $50,000, for example, your 1% fine for not having health insurance would be $500.
The bottom line, though, is that there will be many people for whom the annual fine for not complying will be a fraction of one month of premium for the new health insurance plans.
Is there a way to avoid this fine? Obviously you can avoid it by having health insurance (whether an individual policy or a policy from your employer). But there are other ways to avoid the fine. The most interesting (and the one that will be most common) is this:

  • If your health insurance premium contributions for the calendar year exceed 8% of household income, you are exempt from the fine.

Interesting, eh? If you make $50,000/year, 8% of your income would be $4,000. If your contributions to a qualified health insurance plan would be greater than $4,000/year (that’s $333/month), you would be exempt from having to pay the penalty for not having coverage.
Trust us, unless your premiums are heavily subsidized by the government (another post for another time), there’s a strong chance they will exceed 8% of your income.
Now, we’re not advising anyone to ignore the individual mandate. But if you choose to do so, we’ll have some creative, inexpensive alternatives for you to consider. Contact us to learn more about those, or just stay tuned.
Questions, comments, observations? Comment below or hit the contact us button.