The requirement in the new federal health care reform law that almost every individual must buy health insurance raises one big question: Exactly how will it work?
Some pundits have fueled concerns that this provision, known as the individual mandate, will have health care cops knocking on doors and government spies peeking at insurance policies. But experts say that in the worst-case scenario, you’d likely just get a letter from the IRS and be hit with a fine.
Here’s a look at the Patient Protection and Affordable Care Act’s requirements for individuals – and how they’ll be enforced:
How the individual mandate works
Starting in 2014, almost every individual will have to buy health insurance that meets certain minimum standards set by the federal government. However, there are loopholes. Some individuals will be able to skip health insurance without being fined, such as members of Indian tribes, prisoners, and people with religious objections who ask for and get an exemption.
And some people will be excused for financial reasons, including those who would end up paying more than 8 percent of their income in premiums and those who make so little money that they don’t have to file income tax returns – right now, that’s $9,500 a year for an individual or $19,000 for a couple.
For most people, though, the first step will be to look at whether you get affordable coverage that meets federal standards through your job, says Jeffrey Ingalls, president of The Stratford Financial Group, an insurance consulting and brokerage firm, and author of “Healthcare Reform Made Easy,” a guide geared toward employers and employees.
Individuals who don’t get qualifying coverage through their jobs or their spouses’ jobs will need to buy coverage through their state health insurance exchange, a health insurance marketplace that will offer four levels of plans, according to John Rother, president and CEO of the nonprofit National Coalition on Health Care. For many consumers, tax credits will help offset the cost of insurance. For example, according to the Kaiser Family Foundation, a hypothetical person making about $28,000 a year might get a tax credit of just under $3,500 and end up paying a little more than $2,300 a year.
So, how will the government check up on you to see whether you’ve bought health insurance?
First, health insurance companies will report policy purchases to the federal government. Second, the IRS will include a space on your income tax return where you provide proof of insurance, such as a company name and policy number, according to Ingalls. Along with your tax return, you probably will have to submit a document from your insurance company that summarizes your coverage, he says.
What happens to health insurance outlaws?
If you decide not to buy health insurance, you’ll have to pay a fine. Here’s how it works:
- For the first year, 2014, you’ll pay either 1 percent of your household income or $95 for each adult, whichever is greater.
- In 2015, the fine will go up to 2 percent of your household income or $325 for each adult, whichever is greater.
- In 2016, the fine will reach 2.5 percent of household income or $695 per adult. After that, the amount will be adjusted based on cost-of-living increases.
- For each uninsured child under 18, parents get penalized at half the adult amount.
- The total fine is capped at $285 for a family the first year, $975 the second year and at $2,085 in following years.
If you owe a fine, you’ll pay the IRS in the same way you would for a balance due on your income tax. If you don’t pay the fine, though, the IRS won’t be allowed to use some of the tougher tools – such as garnishing wages or seizing property – that it can use to crack down on people who don’t pay their taxes. Instead, experts say, you might get a letter and a bill from the IRS.
Some experts say the low fines and weak enforcement won’t compel many consumers to obey the law. “I don’t think anybody will buy coverage to avoid this fine,” Ingalls says. He points out, for example, that a person making $25,000 a year might pay a $250 fine the first year, while a cheap health insurance plan probably would cost more than that each month.
Also, people who don’t want to shell out money for any type of insurance always have found ways to evade the law, Rother says. People can buy coverage for a month, then cancel or refuse to pay the next month’s premium, says Rother, noting that some drivers already do that to defy state auto insurance requirements.
But no one can say for sure right now how enforcement of the new law will unfold, Rother says. It will take at least two years to assess the effects of the law and see how many people actually buy health insurance, he says.
“Any new law, especially one as complicated as the Affordable Care Act, is going to take a while to get all the kinks straightened out,” Rother says.