By Colleen Diskin, The Record
HACKENSACK, N.J. — On Monday, the federal government shifts from being a cheerleader for the law requiring all Americans to buy health insurance to an enforcer with the power to tax those who don’t comply.
Those who remain uninsured after that date and who don’t fall into an exempt category, could face a tax penalty — and it may not be as small as they expect.
The oft-cited minimum tax penalty set by the Affordable Care Act is $95 a year. But that’s just the rate for single adults earning less than $19,500 a year. Individuals and families earning above that could end up paying hundreds or even thousands of dollars if they don’t buy a health insurance policy by the deadline on Monday.
The tax rate will double in 2015 and grow each year after that.
“The penalties can be bigger than a lot of people might realize,” said Roberton Williams of the non-partisan Urban Institute and Brookings Institution Tax Policy Center, whose organization has added an “ACA tax penalty calculator” to its website to help people determine their potential tax penalty.
Since the launch last year of the federal and state marketplaces for health insurance under the Affordable Care Act, numerous advertisements and outreach events have attempted to educate the public about the benefits of buying policies under the law. The government has promoted its carrot — subsidies to help make the insurance affordable — in its attempt to get people to sign up for coverage. Now, it’s time for the stick.
It was the threat of this penalty that persuaded 25-year-old Amanda Vangrouw of Wayne, N.J., to seek out an enrollment center this past week to find out her options for coverage.
A day-care worker and William Paterson University student, she said she hasn’t been able to afford health insurance for the past six years. She went to the center Tuesday to find out if she was eligible for a subsidized policy or an exemption from the tax penalty if she couldn’t afford insurance through the program, known as Obamacare.
Vangrouw ended up being advised that she was eligible for free coverage under New Jersey Family Care, the state’s expanded Medicaid program.
But others are doing their own calculations, weighing the cost of a paying insurance premiums — say, $2,628 for a single person earning $50,000 — against the potential tax — $399 in 2014 — and opting not to enroll this year because its still cheaper to take the tax hit.
Williams encourages people to look at the overall financial benefit of having insurance to cushion themselves against unexpected health care costs rather than just comparing premiums and penalties. “The premiums are almost certainly bigger than the penalty, but if you pay the premium, you have insurance,” he said “The calculus is not which is bigger, it’s which has the bigger benefit.”
Albert Enriquez, 29, a freelance sales representative and chairman of the Bergen County Young Republicans organization in New Jersey, said it won’t matter to him what size penalty he faces. He intends to remain uninsured and said many in his group don’t want to be forced into buying plans either. He said he will refuse to pay the penalty, which he considers unfair.
“I’m 29. I’m healthy and I’m not someone who goes to the hospital often,” he said. “If I break an arm, I’ll just pay the bill when it comes.”
The law calls for the IRS to take the penalty out of tax refunds. An individual who opts not to buy insurance can have as little as $95 or potentially as much as $3,600 deducted from his 2014-tax-year refund.
For families, the tax will be calculated not only on income, but on the number and ages of people in the household without insurance. An uninsured family of four earning $85,000 would face a minimum fine of $285, but that would increase to $1,497 for a family earning $170,000. The maximum penalty in 2014 is $11,000.
Williams said his organization created the online calculator program because it believed that many people had only heard about the minimum penalty amounts and were unaware that the fine could equal 1 percent of their income in 2014, double to 2 percent in 2015 and then increase again to 2.5 percent in 2015. It will grow with inflation in the years after that.
“I wanted to dispel this notion that people are just paying a $95 penalty, which some people see as pretty small compared to the premiums they’d be paying,” Williams said.
There are numerous exemptions to the penalty: People with extremely low incomes would not be penalized, and neither would those with religious objections, members of an Indian tribe or those who become uninsured for a short period later this year. People who attempted to enroll but encountered bureaucratic snags will be granted extra time to sign up for coverage without penalty.
And the law only allows the Internal Revenue Service to deduct from tax refund checks. It doesn’t allow the federal government to collect the money through tax liens, wage garnishments or criminal prosecution. For that reason, those who structure their payroll tax withholding to ensure they won’t get refunds — 20 percent of returns do not involve refunds — could potentially avoid paying the penalty, experts say. Conservative talk show host Rush Limbaugh has urged those in his audience who oppose the law to do just that.
“I call it a penalty without teeth,” said Staci Grant, vice president of the benefits division of the Henry O. Baker Insurance Group, a brokerage company in Dover, which sells plans to individuals and small businesses.
Overall, enrollment officials, tax accountants and health insurance brokers said they doubt the threat of a penalty alone will induce those who aren’t inclined to buy insurance. “I’m certainly not seeing a penalty sway people either way,” Grant said.
That will likely change next year when the first penalties are assessed.
“They’re not feeling it yet,” said Robert Traphagen, managing partner of an Oradell accounting firm. “I think we are a year removed from someone sitting across from a CPA’s desk and hearing that you have to pay a penalty for not having insurance. That might be the point at which someone begins to debate whether it makes more sense to get the insurance or pay the penalty.”
AFP Photo/Joe Raedle