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Obamacare Penalty and Minimum Insurance Requirements

What You Must Have and What You Could Pay if You Don't

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Hisham Uadadeh walks out of Leading Insurance Agency after enrolling in a health insurance plan under the Affordable Care Act
Joe Raedle/Getty Images News/Getty Images

Updated: October 24, 2013

By March 31, 2014, almost all Americans who can afford it will be required by Obamacare - the Affordable Care Act (ACA) -- to have a health insurance plan or pay an annual tax penalty. Here is what you need to know about the Obamacare tax penalty and what kind of insurance coverage you need to avoid paying it.

Note: On October 23, the Department of Health and Human Services made clear that all consumers who sign up for coverage by March 31, 2014 will not be required to pay a penalty.

If You Have Any Obamacare Questions

Obamacare is complicated. A wrong decision can cost you money. As a result, it is critical that all questions regarding Obamacare be directed to your health care provider, your health insurance plan or to your state's Obamacare Health Insurance Marketplace.

Questions can also be submitted by calling Healthcare.gov at toll-free 1-800-318-2596 (TTY: 1-855-889-4325), 24 hours a day, 7 days a week.

During the great Obamacare bill debate, Obamacare supporter Senator Nancy Pelosi (D-California) infamously said lawmakers needed to pass the bill "so we can find out what's in it." She was right. Nearly five years after it became law, Obamacare continues to confuse Americans in great numbers.

Also See: Yes, Obamacare Does Apply to Congress
So complicated is the law, that each of the state Health Insurance Marketplaces will employ Obamacare Navigators to help uninsured people meet their Obamacare obligation by enrolling in the qualified health insurance plan that best meets their medical needs at an affordable cost.

Minimum Insurance Coverage Required

Whether you have health insurance now or buy it through one of the Obamacare state Insurance Marketplaces, your insurance plan must cover 10 minimum essential health care services. These are: outpatient services; emergency services; hospitalization; maternity/newborn care; mental health and substance abuse services; prescription drugs; rehabilitation (for injuries, disabilities or chronic conditions); lab services; preventive/wellness programs and chronic disease management; and pediatric services.

If you have or buy a health plan that does not pay for those minimum essential services it may not qualify as coverage under Obamacare and you may have to pay the penalty.

In general, the following types of health care plans will qualify as coverage:
  • Any plan purchased through one of the state Insurance Marketplace and employer-provided insurance plans, including plans for retirees;
  • Peace Corps volunteer plans
Other plans may also qualify and all questions regarding minimum coverage and plan qualification should be directed to your state's insurance Marketplace Exchange.

The Bronze, Silver, Gold, and Platinum Plans

Health insurance plans available through all Obamacare state Insurance Marketplace offer four levels of coverage: bronze, silver, gold and platinum.

While bronze and silver level plans will have the lowest monthly premium payments, out-of-pocked co-pay costs for things like doctor visits and prescriptions will be higher. Bronze and silver level plans will pay for about 60% to 70% of your medical costs.

Gold and platinum plans will have higher monthly premiums, but lower co-pay costs, and will pay for about 80% to 90% of your medical costs.

Under Obamacare, you cannot be turned down for health insurance or forced to pay more for it because you have an existing medical condition. In addition, once you have insurance, the plan cannot refuse to cover treatment for your pre-existing conditions. Coverage for pre-existing conditions begins immediately.

Once again, it is the job of the Obamacare Navigators to help you select a plan offering the best coverage at a price you can afford.

Very Important - Open Enrollment: Each year, there will be an annual open enrollment period after which you will not be able to purchase insurance through the state Insurance Marketplaces until the next annual open enrollment period, unless you have a "qualifying life event." For 2014, the open enrollment period is October 1, 2013 to March 31, 2014. For 2015 and later years, the open enrollment period will be October 15 to December 7 of the previous year.

Who Does Not Have to Have Insurance?

Some people are exempt from the requirement to have health insurance. These are: prison inmates, undocumented immigrants, members of federally-recognized American Indian tribes, persons with religious objections, and low-income persons not required to file federal income tax returns.

Religious exemptions include members of health care sharing ministries and members of federally-recognized religious sect with religion-based objections to health insurance.

The Penalty: Resistance is Futile and Expensive

Attention health insurance procrastinators and resistors: As time goes by, the Obamacare penalty goes up.

In 2014, the penalty for not having a qualified health insurance plan is 1% of your annual income or $95 per adult, whichever is higher. Have kids? The penalty for uninsured children in 2014 is $47.50 per child, with a maximum per-family penalty of $285.

In 2015, the penalty increases to the higher of 2% of your annual income or $325 per adult.

By 2016, the penalty goes up to 2.5% of income or $695 per adult, with a maximum penalty of $2,085 per family.

After 2016, the amount of the penalty will be adjusted for inflation.

The amount of the annual penalty is based on the number if days or months you go without health insurance after March 31. If you have insurance for part of the year, the penalty will be prorated and if you are covered for at least 9 months during the year, you will not pay a penalty.

Along with paying the Obamacare penalty, uninsured persons will continue to be financially responsible for 100% of their health care costs.

The nonpartisan Congressional Budget Office has estimated that even in 2016, more than 6 million people will pay the government a combined $7 billion in Obamacare fines. Of course, revenue from these fines is essential to paying for many of the free health care services provided for under Obamacare.

If You Need Financial Help

To help make mandatory health insurance more affordable to people who can't afford it in the first place, the federal government is providing two subsides for qualifying low-income individuals and families. The two subsides are: tax credits, to help pay monthly premiums and cost-sharing to help out-of-pocket expenses. Individuals and families can qualify of either or both subsidies. Some people with very low incomes may wind up paying very small premiums or even no premiums at all.

Qualifications for insurance subsidies are based on annual income and vary from state to state. The only way to apply for a subsidy is through one of the state insurance Marketplaces. When you apply for insurance, the Marketplace will help you calculate your modified adjusted gross income and determine of you qualify for a subsidy. The Exchange will also determine if you qualify for Medicare, Medicaid or a state-based health assistance plan.

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