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Are You Ready For Mandatory Health Insurance in 2014?

Beginning in 2014, the Patient Protection & Affordable Care Act imposes the new requirement that US persons, with certain exceptions, have minimal essential health care insurance. A penalty, payable with the individual's income tax return, may apply to those who don't have the required health care coverage. A minimum essential health care policy is one in which the insurer pays 60% of the average medical expenses incurred by an average person over the course of one year. How this will impact your family will depend upon a number of issues.

Already insured: If you will already be insured through an employer plan, Medicare, Medicaid, the Veterans Administration, or a private plan that provides minimal essential care, then you will not be subject to any penalties under this new law.

Exempt from the mandatory insurance requirement: The following individuals will be exempt from the insurance mandate and will not be subject to a penalty for being uninsured:

  • Individuals who have a religious exemption;
  • Those not lawfully present in the United States;
  • Incarcerated individuals;
  • Those who cannot afford coverage based on formulas contained in the law;
  • Those who have income below the federal income tax filing threshold;
  • Those who are members of Indian tribes;
  • Those who were uninsured for short coverage gaps of less than three months; or
  • Those who have received a hardship waiver from the Secretary of Health and Human Services, who are residing outside of the United States, or who are bona fide residents of any possession of the United States.

Lower Income Subsidies: Individuals and families whose household income is between 100% and 400% of the federal poverty level will qualify for a varying amount of subsidy to help pay for the insurance in the form of a Premium Assistance Credit. To qualify for that credit, the insurance must be acquired from an insurance exchange operated by the applicant's state or by the Federal Government, and the applicant cannot be eligible for minimal essential coverage through Medicaid, Medicare, employer-sponsored insurance, or other acceptable types of coverage. Exchanges are currently accepting applications for insurance that will become effective January 1, 2014.

It is important to note that the subsidy is really just a tax credit based upon family income. It can be estimated in advance and used to reduce the monthly insurance premiums; it can be claimed as a refundable credit on the tax return for the year; or it can be some combination of both. However, it is based upon the current year's income and must be reconciled on the tax return for the year. If too much was used as a premium subsidy, it must be repaid. If there is excess, it is refundable.

If household income is below 100% of the poverty level, the individual or family qualifies for Medicaid.

Penalty for noncompliance: The penalty for noncompliance will be the greater of either a flat dollar amount or a percentage of income:

  • For 2014, $95 per uninsured adult ($47.50 for a child) or 1 percent of household income over the income tax filing threshold.
  • For 2015, $325 per uninsured adult ($162.50 for a child) or 2 percent of household income over the income tax filing threshold.
  • For 2016 and beyond, $695 per uninsured adult ($347.50 for a child) or 2.5 percent of household income over the income tax filing threshold.

Flat dollar amounts: The flat dollar amount for a family will be capped at 300% of the adult amount. For example, the maximum in 2016 for a family will be $2,085 (300% of $695). The child rate will apply to family members under the age of 18.

Overall penalty cap: The overall penalty will be capped at the national average premium for a minimal essential coverage plan purchased through an exchange. This amount won't be known until a later date.