Still Without Health Insurance? Here’s How Much the Penalties Will Cost You


Health insurance is something we all need. While it may seem like an unnecessary expense at times, not being prepared for a medical disaster can completely devastate your finances. In fact, being plagued by enormous medical bills is the number one cause of bankruptcy filings. There are financial, medical, and psychological costs associated with having no health insurance. Here are just a few:

Steep Penalties

If you don't have health insurance, the Affordable Care Act (ACA) dictates that you pay a fee or penalty called the "individual shared responsibility payment." Any Americans who fail to have minimum essential coverage will be charged this penalty.

The penalty is calculated in two ways, and you will pay whichever of the figures is higher: It amounts to either 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, to a maximum of $2,085. This fee has steadily risen since 2014, so it only makes sense to remain covered. For 2017 and beyond, the percentage will remain at 2.5%, but the flat fee will be adjusted for inflation. If you have health coverage for part of the year, you will only need to pay 1/12 of the annual fee for each month you weren't insured.

The penalty is equivalent to the national average cost for a bronze-level health plan, so you would be paying the same amount whether you have health insurance or not. Therefore, it likely won't save you any money to avoid getting health insurance.

What If You Don't Pay the Penalty?

If you don't pay the penalty during tax time, you will not be subject to jail time or any additional fines. However, the IRS can withhold money from your tax refund at the end of the year.

Possible Exemptions

There are certain health coverage exemptions to the individual mandate charged when you file your federal tax return. For instance, certain life events or financial status may qualify you for an exemption.

With the short gap exemption, if you have health insurance throughout the year, but neglected to have coverage for only one or two months, you may be exempt from the fee. However, even if you only missed one day of coverage in a month, the government will deem that you did not have coverage for that whole month. For instance, if you are insured all year, but didn't have coverage June 30 through July 1, the government declares that you missed two months of coverage.

The Statistics

According to the NY Times, a person between the ages of 25 and 34 has a 5% chance of incurring medical bills of at least $27,000 and a 10% chance of incurring medical bills that exceed $13,000. For Americans under the age of 65, there is approximately a 10% chance of incurring more than $30,000 in medical bills in only one year. A very unfortunate 1% of the population incurs more than $115,000 in medical bills in a single year.

This is a significant risk and can spell financial ruin and a potential bankruptcy filing. According to the Harvard Medical School, "Unless you're a Warren Buffett or Bill Gates, you're one illness away from financial ruin in this country." Having health insurance will not necessarily prevent these startling statistics, but they can help protect you from certain catastrophic medical events.

The Psychological Aspect

There is a very defined psychological benefit of having health insurance. Dan Bailey, a consulting health care actuary and a fellow of the Society of Actuaries, found that people who have health insurance are more likely to pursue necessary services than those who don't have health insurance.

You are also more likely to take advantage of preventative medical services if you have health insurance. After all, if you're already paying for it, why not take advantage of the free annual physical? In fact, most people don't have health insurance because they can't afford it, not because they think they're invincible.

Cost vs. Value

The Kaiser Family Foundation found that a young man between the ages of 28 and 32 can buy a typical silver plan for about $2,800 in annual premiums. While this may end up costing you more than the penalty would, it's not by much. When you consider how much you may end up spending out-of-pocket for something as simple as a back injury, you can clearly see how imperative health insurance really is.

Do you know of any other monetary or psychological costs of not having health insurance? Please share your thoughts in the comments!

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