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Who must pay the Obamacare tax?

Starting on Jan. 1, 2014, Americans must have health insurance or pay a tax penalty. This requirement is also known as the “individual mandate” and is included in the Affordable Care Act, also known as Obamacare. A key purpose of the tax is to encourage more Americans to get health insurance, if they don’t have it already.

The tax penalty won’t affect most consumers, since many already have health insurance through their employer. Less than 2 percent of Americans will have to pay the tax for not having medical coverage, according to estimates from the U.S. Congressional Budget Office.

However, most consumers don't feel the financial penalty will motivate them to buy insurance, according to a recent survey by HealthPocket, a technology company that compares and ranks health plans.

obamacare tax Almost two-thirds of consumers said the tax would not motivate them to shop for insurance in October 2013, when the new health insurance exchanges in each state will start open enrollment. Only 8 percent of consumers said the tax would motivate them, and nearly 30 percent were unsure.

“The penalty alone will not drive a large number of consumers to purchase a new health plan starting this October," says Bruce Telkamp, the CEO of HealthPocket. "Therefore, the law will be most effective if consumers see real value in obtaining the insurance coverage."

Who must pay the Obamacare tax?

In 2014, the penalty for not having insurance will be $95 per adult (or 1 percent of household income, whichever is greater), $395 in 2015 (or 2 percent of household income), and $695 per person (or 2.5 percent of household income) in 2016. Under the law, parents must also insure their children or face an additional tax penalty.

You won’t be penalized for not having health insurance if you already have medical coverage through an employer, a government program like Medicare or Medicaid, a military program, or an individual policy.

In addition, the tax will not apply to certain groups of people in this country. The law provides an exemption if you:

Have an annual income below $10,000 for an individual or $20,000 for a family.

Can’t buy insurance for less than 8 percent of your annual income.

Are an undocumented immigrant.

Are a member of an Indian tribe.

Are incarcerated.

Are a member of a health care sharing ministry (a health care cost-sharing arrangement among people who have similar religious beliefs).

Belong to a religion that objects to health insurance.

Go without coverage for less than three months.

The law also provides a hardship exemption on a case-by-case basis for people who face unexpected personal or financial circumstances that prevent them from obtaining coverage.

The U.S. Congressional Budget Office estimates that 30 million Americans will be uninsured in 2016, but because of the exemptions, only 6 million of them will be subject to the tax.

The state-run exchanges will issue certain exemptions and notify the Internal Revenue Service. Citizens also can request certain exemptions directly from the IRS.

The first payments won’t take place until 2015, when citizens file their federal tax returns for the 2014 tax year.

How many Americans are uninsured?

About 48 million Americans were uninsured in 2011, according to the U.S. Census Bureau. Typically, uninsured people don’t have coverage for the following reasons:

They’re self-employed.

They work for a small employer that doesn’t offer health benefits.

They work a part-time job that doesn’t qualify for health benefits.

They are unemployed.

They can’t afford to purchase private insurance.

People who don’t get health benefits from an employer can buy individual coverage, but it can be very expensive, and insurers can refuse to sell them a policy because of preexisting health conditions (until Jan. 1, 2014, when that will be prohibited under the Affordable Care Act).

When uninsured people get treatment at hospital emergency rooms and then don’t pay their medical bills, this causes health insurance companies to raise the monthly premiums for everyone who has health insurance. Monthly premiums may decrease if more young and healthy people buy insurance, rather than going without coverage and having to pay the tax. However, some of the currently uninsured are older and sicker people, which would make insurers likely to raise the monthly premiums.

Bob Arnoff, an insurance broker and benefits consultant in Chagrin Falls, Ohio, says, “Somebody could have terminal cancer or AIDS, and the insurance companies have to pay for that.” This may lead to a raise in rates, he adds.

Overall, the mandate will ensure there is “a definite increase in the people who do get coverage,” Arnoff says. However, he adds, there will still be people who say ‘I’m going to pay the penalty because it’s cheaper than paying health insurance’.

However, it’s too soon to know whether insurance rates will rises or not as it depends on what percentage of the newly insured will be very sick and what percentage will be young and healthy.

Other health insurance links you may like:

What are the four Obamacare health insurance plans?

What is a health care subsidy?

Will Obamacare save you money on preventive care?

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