When the Affordable Care Act’s (ACA) (otherwise known as Obamacare) individual mandate took effect in 2014, so did the penalty for going without health insurance. Under this law, if you don’t enroll in minimum essential coverage and are not exempt from the mandate you may owe a tax penalty known as the shared responsibility payment.
That’s all about to change.
Starting Jan. 1, 2019, the tax penalty will be repealed. If you don’t have major medical health insurance for the 2019 coverage year, you won’t be penalized.
What the repeal means for your health insurance options in 2019
The tax penalty may go away, but there’s no doubt that major medical insurance remains the best option for many people in 2019, especially those who:
- Need comprehensive benefits
- Want a policy that complies with the Affordable Care Act (ACA)
- Need guaranteed issue coverage due to health history or pre-existing conditions
If you are one of those people, then you’ll want to mark your calendar for 2019 open enrollment (it runs November 1 through December 15, 2018) and purchase a major medical policy. You can enroll on the government health insurance exchanges (i.e., HealthCare.gov and state-based marketplaces) or in the private market through a carrier website or health insurance agent; subsidies are only available through the government-run exchanges.
That said, if for one reason or another you want to explore alternative health insurance options and decide to enroll in one of them, you can do so without facing the tax penalty in 2019. The options below are not considered qualified health insurance under the ACA.
Two types of alternative health coverage you might consider:
1. Short-term medical insurance
Short-term medical is designed as temporary health insurance coverage for people who are in between major medical policies. Plans include a range of benefits to help pay for catastrophic medical expenses; however, there are some plans that include a few preventive care benefits. Benefit amounts and limits depend on the plan you select.
Short-term plans last from 30 to 364 days with duration limits varying by state.
2. Hospital indemnity insurance
A fixed-benefit indemnity insurance, often known as a hospital indemnity plan, provides benefits that help pay for hospital, surgical and critical illness-related expenses. Benefits are paid as fixed-dollar reimbursements for covered medical expenses at specific durations.
For example, if you were in the hospital for 3 days and had a hospital indemnity plan with a daily inpatient hospital confinement benefit of $2,000 per day, then that plan would reimburse you a total amount of $6,000 ($2,000 per day x 3 days). As with short-term medical and other coverage, hospital indemnity benefit amounts and limits vary by plan.
What if you go without health insurance altogether?
Penalty or not, you may want to obtain some level of coverage, such as a fixed-benefit indemnity plan or short term medical plan,to help pay for covered medical expenses should you experience an unexpected illness or injury.
Why? Well, evidence suggests that uninsured people are less likely to receive healthcare than their insured friends and family, and when they do, they pay more for it.
Specifically, Kaiser Family Foundation research found that:
- 23% of people without insurance postponed medical care due to cost compared to only 9% of people on Medicaid or another public plan
- 20% of people without insurance went without needed care due to cost, compared to 8% of Medicaid recipients
- People without insurance for an entire year pay for one-fifth of their care out of pocket and hospitals frequently charge uninsured patients much higher rates compared to those paid by private health insurers and public programs. The numbers don’t lie.
No health insurance in 2018?
There will still be a tax penalty for no health insurance in 2018. If you are uninsured this year, you may be wondering about the consequences.
You could be penalized when you file your 2018 taxes in 2019. Here’s what to know about finding minimum essential coverage and facing the penalty if you don’t have it.
You may have coverage options
Consider the following. Do you qualify for:
- A special enrollment period to obtain an Obamacare plan
- Medicaid, in which case you can enroll year-round
- Other minimum essential coverage options that are available year-round
- Job-based benefits within the next 3 months, in which case you might want to consider short-term medical
If none of these options are available to you, you may still qualify for an exemption to avoid the tax penalty.
Do you qualify for an ACA exemption?
If you answered “yes”
If you qualify for exemptions, you will not owe the tax penalty for going without minimum essential coverage.
Some examples of exemption-eligible circumstances include:
- Having a gross or household income below the minimum threshold for filing a tax return
- Experiencing general hardship due to circumstances such as homelessness, foreclosure, death of a close family member, unpaid medical bills and more
- Being a resident of a state that did not expand Medicaid
Some ACA exemptions must be claimed or reported when you file your taxes. Others are automatic. More exemption information is available at IRS.gov.
While an exemption from participating in the ACA may feel like a relief, remember, it just means you’re not going be to obligated to purchase an Obamacare plan and will not owe a penalty.
Remaining uninsured still opens you up to the risk of medical bills in the event you need to access healthcare, and you could wind up paying these bills fully out of pocket.
The good news is there’s an affordable, convenient alternative health insurance option called a “fixed indemnity” hospital plan that can help with that. More on that below.
If you answered “no”
If you don’t fit the exemption criteria above, you are allowed a single period of up to three months without ACA-compliant health insurance coverage.
For example, if you’re recently unemployed but you expect to find employment within a couple of months and attain major medical at that time (either through your employer or a special enrollment period), you can technically go without health insurance coverage without being penalized.
However, this temporarily leaves you open to the financial risk of medical bills and that’s where a fixed indemnity or short-term medical plan come into play.
Determining your tax penalty
At this point, you may realize you’re facing a tax penalty for anywhere from 9 to 12 months.
First, the tax penalty: For 2017, these fees amounted to either 2.5% of your household income or $695 per adult and $347.50 per child under 18 in your household to a household maximum of $2,085, whichever amount is higher3.
Though 2018 figures aren’t available yet, you can calculate your anticipated tax penalty here for 2017 to get a ballpark estimate. (The fee is adjusted for inflation each year.)
Once you know that number, you’ll want to ensure you can save enough money to pay that penalty when you file that year’s tax returns.
Now for the silver lining: An alternative health insurance option like a hospital indemnity plan can help cover the high costs of a surgery or hospital stay without the budget busting monthly premium or deductible of a major medical policy.
Don’t go uninsured – get alternative insurance coverage
If you missed out on a major medical policy in 2018, alternative health insurance, like fixed benefit hospital indemnity and short-term medical plans, are not ACA-compliant and do not qualify as minimum essential coverage; however, they do provide a range of benefits for unexpected medical care and often have premiums that are a fraction of major medical insurance premiums.
You can get a quote online today and enroll tomorrow since these plans aren’t subject to the open enrollment period.
Or call the number on your screen to learn more about your options.
As mentioned at the top of this page, major medical may still be the best option for you if you:
- Want to avoid the tax penalty in 2018
- Would like the type of comprehensive coverage that only major medical insurance provides
- Do not qualify for alternative coverage due to health history
- Qualify for a subsidy (applies only to major medical plans purchased from a government health insurance exchange) IBM