It’s tax time, and 2015 is the first year that taxpayers will pay if they did not have qualified health coverage the year before. Even taxpayers that did have coverage may have to pay the government back for subsidies they received to help pay for their insurance.
Whether or not you’re in either camp this year, it is helpful for health care consumers to know the rules and avoid any problems in the future. Here are five things to bear in mind.
1. The penalty goes up next year.
The penalty for not having coverage in 2014 is the greater of $95 or 1 percent of income up to the national average cost of a bronze plan. In 2014, the national average cost of a bronze plan was $2,448.
In 2015, those numbers go up to the greater of $325 or 2 percent of income up to the national average cost of a bronze plan.
All of these numbers are per person. So, if you have a family, your penalty could be larger. The idea behind the penalty is to encourage people to buy health insurance.
2. There are exemptions from the requirement to have coverage or pay the penalty.
The vast majority of Americans either need to have coverage or pay the penalty. Exemptions exist, however, that could save you from paying it even if you weren’t insured. These exemptions range from not being uninsured for more than two consecutive months to being a member of a health care sharing ministry like Medi-Share to having your utilities shut off at some point during the year. A full list of all of the possible exemptions can be found at healthcare.gov.
3. Subsidies exist to help pay for coverage.
The government knows that one reason people don’t buy health insurance is because it’s too expensive. Its answer to that is to provide subsidies for people that can’t afford it.
When applying for individual health insurance through the exchange, the government asks you to estimate your income. Based on the estimate you give, the government gives you subsidies to help pay the cost of premiums.
4. You might have to pay those subsidies back.
If it turns out that you earn more money than you estimated when you applied for your health insurance, the government may want its subsidies back.
For example, say that you have a family of four and when you applied for health insurance you estimated that you were going to earn $50,000 in 2015. According to the Kaiser Family Foundation, you would be eligible for subsidies of $5,959 to help pay for your family’s health insurance.
But then you are offered a new job in sales and end up making $65,000. Congratulations! But wait, when you file your 2015 taxes, the government is going to notice you made $15,000 more than you told them you would make. As a result, again according to Kaiser, you should have only received subsidies of $3,606. The government is going to want you to pay back the difference — $2,353 — when you file your taxes in 2016.
5. The government wants you to keep it apprised of income changes.
The government provides a place in each taxpayer’s healthcare.gov account where you can report income changes. Once you report the change, there are a series of steps to complete your update and ensure that the subsidy you’re receiving, and the monthly premium you’re paying, are correct. Doing this can help you avoid paying back a large amount of subsidy at the end of the year.
Taxes and health insurance have always been intertwined in the form of the tax break given for employer-provided health insurance. As the tax incentives adjust to the individual market, health care consumers are being asked to take on more and more responsibility to keep it all straight.
Alex Tolbert is the founder of Bernard Health, a company that provides noncommissioned, expert advice on health, Medicare and COBRA insurance and medical bill consulting.
Date: February 25, 2015