Do I Really Need To Buy Insurance?

Q) "Is the government really making me buy health insurance? Can they do that?"
Todd P. – Lexington, KY

A) The Affordable Care Act – or what many people refer to as "Obamacare" – is a controversial law, and no part is more controversial than the Individual Mandate. Todd asks a very good question, and the simple answer is that the federal government cannot "make you buy" health insurance . . . but the federal government can "make you pay a tax" if you don’t have health insurance. That means you still have the freedom to choose the coverage that works best for you and your family, with the understanding that some kinds of coverage could leave you liable to this new tax.

Here’s what you need to know about the Individual Mandate:

• First, understand there is no law that requires you to purchase any kind of health insurance. However, the Affordable Care Act does say that those that don’t have coverage with "minimum essential benefits" could be subject to a modest tax penalty. For many people that penalty could be as low as $95, and you wouldn’t be subject to that penalty until you file your taxes in 2015.
• Most indemnity insurance or "fixed benefit" policies do not provide the minimum required coverage to avoid the penalty. However, those policies are popular with consumers as they often have lower premiums and offer "first dollar" coverage for medical costs. For consumers worried about the high deductibles of plans on the Exchange, these plans may be an attractive option.
• There are several exemptions from the penalty – and you may qualify for one or more of them. For instance, if your income is so low that you don’t have to file a tax return, there’s no penalty for not having health insurance. Also, if the cost of comprehensive health insurance costs more than 8% of your household income, there’s no penalty.
• Most indemnity insurance or "fixed benefit" policies do not provide the minimum required coverage to avoid the penalty. However, those policies are popular with consumers as they often have lower premiums and offer "first dollar" coverage for medical costs. For consumers worried about the high deductibles of plans on the Exchange, these plans may be an attractive option.
• The penalty is one of many factors you should consider when selecting coverage, but it shouldn’t be the only factor. The smartest option is to find the coverage that best meets the needs of you and your family at a price you can afford.
• Most indemnity insurance or "fixed benefit" policies do not provide the minimum required coverage to avoid the penalty. However, those policies are popular with consumers as they often have lower premiums and offer "first dollar" coverage for medical costs. For consumers worried about the high deductibles of plans on the Exchange, these plans may be an attractive option.
• If you are on a government health plan such as Medicare, Medicaid, CHIP or TRICARE you have comprehensive coverage and won’t be subject to this new tax. Also, most but not all employer-provided health care coverage satisfies the requirement (ask your company’s human resources office if you aren’t sure). For those that purchase their own health insurance, "major medical" policies that contain Essential Health Benefits mandated by the ACA provide sufficient coverage.
• Most indemnity insurance or "fixed benefit" policies do not provide the minimum required coverage to avoid the penalty. However, those policies are popular with consumers as they often have lower premiums and offer "first dollar" coverage for medical costs. For consumers worried about the high deductibles of plans on the Exchange, these plans may be an attractive option.
• The penalty is very low in the first year, and it looks like the only way the IRS can even collect that penalty would be by subtracting it from any income tax refund you might receive in 2015. Initially, the penalty for not having the right coverage is just $95 per adult and $47.50 per child, with a maximum of $285 per family. But the penalty could be larger depending on your income – up to 1% of your income above the income tax filing threshold (which is approximately $10,000 for an individual or $20,000 for a family). The penalty will be higher in future years.
• The law expressly prohibits the IRS from being aggressive in collecting this penalty, and at this time it is believed that the primary way for the IRS to collect that penalty will be to subtract it from any tax refund you may receive in 2015.

We hope that this has helped you understand the Individual Mandate a little bit better. Remember, this new tax is a factor that you should consider as you review your coverage options. But the most important thing is to find coverage that works for you and your family, at a price you can afford. If you want to learn more about the options available to YOU, call a member of the iCan team today!

Michael Bertrand is the Government and Industry Relations Director for the iCan Benefit Group. An attorney by trade, Michael spent several years as an insurance regulator and served as Vermont’s Commissioner of Banking, Insurance and Health Care Administration from 2010-2011, wherein he regulated the insurance industry in the state of Vermont and its fourteen (14) hospitals. The information or opinions contained herein are for informational purposes only as a service to the public, and is not legal or tax advice, or a substitute for legal or tax counsel.