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Is There a Penalty for Not Having Health Insurance?

Health insurance is a major concern for any sensible adult. It means the cost of medical treatment is shared between you and the insurance company. A look at a health insurance policy will tell anyone that health insurance companies pick up the lion’s share of any expense. Coverage is a benefit worth having, but is it required? Would you be forced to pay a penalty if you do not have health insurance?

Not on the Federal Level

The Affordable Care Act did impose a tax penalty for not having health insurance. The cost in 2018 was $695 for adults and $347.5 for children or 2.5% of annual income, whichever was greater. The intent was to persuade people to purchase health insurance. This tax penalty was indefinitely suspended by the Trump Administration in 2019 and is no longer levied. You are liable for a tax penalty only for the 2014-2018 tax filings. However, Federal elimination does not mean that there are no longer tax consequences for not having health insurance. Penalties are still being levied on the state level.

States Do Impose Penalties

Several states will impose a tax penalty for not having health insurance and the degree of pain inflicted depends on the state. The objective is to give a negative incentive for not having health insurance and the states are particular about what type of health insurance an individual must have to avoid penalty.

The short-term plans are not enough. Qualifying coverage needs to have services such as prescription drugs and doctors’ services. The requirements come close to the comprehensiveness of healthcare plans that employers often provide. States that do impose a penalty are not making it easy for someone who missed open enrollment. 

The compliance conditions can be so stringent that California, New Jersey, Rhode Island, and Massachusetts will not allow people to buy short-term plans. Vermont and Washington D. C. limit the short-term plans to no more than three months of coverage. It means that some people have no choice but to face the music and pay the price for ignoring open enrollment opportunities.

What Should You Do?

We recommend you take the state penalties seriously. These are not frivolous expenses but can be hundreds of dollars of taxable income that you do not want to bother with at all. We suggest you do yourself a favor and find a health insurance policy, the sooner, the better. Make sure that you know what the state coverage requirements are because the state may impose a penalty for not having the right health insurance. 

If you don’t already have insurance, you have a little bit of luck on your side. The filing date for federal taxes has been moved forward two months to July 15th. You might have an opportunity to get coverage and not be penalized, depending on the state you live in. You also need to take this time to collect all the information necessary to report your status to the state. It is probably the same that you would have had to use if you were facing a federal penalty for not having insurance. It is a prudent move to hold onto all information regarding health insurance premiums if you still don’t have coverage at next year’s filing.

If you were not able to take advantage of an open enrollment period, you might be eligible for a special enrollment. It all depends on your circumstances and when you lost your original coverage. Making use of a health insurance broker can make things a lot easier for you. That professional is aware of the state requirements and can help you find a policy that meets the coverage conditions at an affordable price.

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Mike from Columbus, Ohio
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