Curious what happens if you don't buy health insurance?

The first open-enrollment period for health insurance under the Affordable Care Act ends March 31 – in less than two weeks. The next enrollment period won't begin until Nov. 15.

Wondering what will happen if you don't purchase coverage by the end of the month? We can explain.

No coverage without a 'qualifying event'

Most important, you won't have health insurance. This means you'll be responsible for the full cost of your health care for the remainder of 2014, which is not a risk to be taken lightly. Costs for a serious injury or major health event can be extremely high, leading to financial hardship or even bankruptcy.

The only exception if you miss the deadline is something referred to as a "qualifying life event." These include:

  • Getting married.
  • Having or adopting a child.
  • A permanent move to an area that "offers different health plan options."
  • Losing your current coverage (due to job loss, divorce, loss of Medicaid or CHIP eligibility, expiration of COBRA coverage, or if your plan is de-certified). Voluntarily dropping coverage or losing coverage as a result of failure to pay your premiums does not qualify.
  • A change in income or household status that affects your eligibility for a premium tax credit or cost-sharing subsidy for an exchange plan.

Most "special enrollment periods" for qualifying events extend only 60 days from the date of the event.

The individual mandate's tax penalty

If you require emergency room care and you do not have health insurance, you are responsible for paying as much of that cost as you can. If you are unable to pay the entire cost, the remainder of the bill will be passed on to people who do have insurance coverage, in the form of higher premiums.

This is one of the major reasons why individuals who do not purchase coverage in 2014 will be subject to a tax penalty under the "individual mandate."

In 2014, that penalty will be relatively small. The penalty is calculated in one of two ways, and you will pay whichever is larger:

  • 1 percent of your annual household income (unless you make less than the tax-filing threshold, $10,150 annually for an individual in 2014).
  • $95 per adult and $47.50 per child, with a maximum of $285.

If you are insured for part of the year, the penalty applies to each month that you are uninsured, minus a grace period of three months.

The penalty increases each year. In 2015, the penalty will be 2 percent of household income or $325 per person, and in 2016 and subsequent years it will be 2.5 percent of income or $695 per person. After that the penalty will be adjusted for inflation.

Enforcement

Taxpayers will pay penalties as part of their 2014 federal income tax filing. Those who don't pay the penalty will have that amount deducted from tax refunds (or future refunds if one is not owed in 2014) or earned income tax credits. Individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty and no federal agency can file a notice of lien or levy on any property.

Exemptions from the payment

In some circumstances, you may qualify for an "exemption." For example, if you were uninsured for less than three months during the year; if you are a member of a federally recognized American Indian tribe; or if you are incarcerated, you are exempt. Click here for a complete list of exemptions.

There also are hardship exemptions, such as if you filed for bankruptcy; if your property was damaged by fire, flood or other disaster; or you were a victim of domestic violence. Click here for a complete list of hardship exemptions.

You still have time and you may qualify for a subsidy

Purchasing health care coverage is the best way to avoid costly health care bills or tax penalties. And there are lots of affordable options – many people are eligible for tax credits for premiums or to pay a portion of costs. In addition, if you are under 30, you may qualify for catastrophic coverage, which could stave off serious financial hardship in the case of a health care crisis.

Once the current open enrollment period ends, those subsidies will not be available again until November, for coverage beginning January 2015. Time's awastin' – don't delay! Check out Colorado's health care marketplace – Connect for Health Colorado it's the only place you can get subsidies to help pay for premiums.

– Bob Semro and Kathleen Hallgren


Article posted on March 18, 2014