Understanding the Health Insurance Penalty: What You Need to Know

Understanding the Health Insurance Penalty: What You Need to Know

Many folks in the United States are still confused about the Health Insurance Penalty despite the Affordable Care Act being passed almost 10 years ago. In a nutshell, the penalty is a tax levied on people who fail to secure health insurance coverage. This article will take you through the basics of the Health Insurance Penalty so you can understand what it is and how it works.

What is the Health Insurance Penalty?

The Health Insurance Penalty, officially referred to as the individual shared responsibility provision, was introduced under the Affordable Care Act (ACA) in 2014 to encourage Americans to purchase health insurance coverage. The provision required eligible individuals to obtain insurance that meets the ACA’s minimum essential coverage standards or pay a tax penalty.

Who needs to worry about the Health Insurance Penalty?

Individuals who do not qualify for an exemption and do not have health insurance for more than two consecutive months are typically liable for the penalty. The fee is calculated based on household income or a flat rate (whichever is higher) and is pro-rated if coverage was not held for the entire year. However, it’s worth noting that the penalty no longer applies from the tax year 2019.

How much is the Health Insurance Penalty?

Penalties vary depending on the tax year and household income. In 2018, for instance, the fee was a percentage of income or the flat rate of $695 per adult and $347.50 per child, up to a maximum of $2,085. However, that was the highest amount you would pay. Most people paid smaller amounts.

Why was the Health Insurance Penalty repealed?

The penalty was repealed by the Tax Cuts and Jobs Act of 2017 and thus no longer applies beyond the tax year 2018. The repeal came into effect in 2019, so if you didn’t have health insurance in 2018, you are still liable for the fee. However, from 2019, you will no longer be penalized if you do not have health insurance.

In conclusion, the Health Insurance Penalty was introduced as a financial incentive to encourage individuals to secure health insurance coverage that meets the ACA’s minimum essential coverage standards. It was significant in ensuring that there were enough healthy people in the insurance pool so that insurance companies wouldn’t struggle to cover the health care costs of sick people. However, the penalty is no longer in place, and Americans are no longer required to have health insurance or pay a tax penalty.