6.6 Million People Just Learned the Hard Way How Much It Costs to Be Uninsured Under Obamacare

The Patient Protection and Affordable Care Act, known also as Obamacare, was signed into law by President Obama in March 2010, but it didn’t go into effect until Jan. 1, 2014. Despite the more than three years for insurers, states, the federal government, physicians, and consumers to prepare for the coming overhaul of our healthcare system, there were still plenty of hiccups (and challenges) when the calendar changed over.

Pretty much from the get-go of the first enrollment period there were technical issues with the online marketplace servers and software that prevented consumers from completing the enrollment process. But even bigger challenges would be fought at the legal level with the constitutionality of the individual mandate penalties coming into question in 2012, and more recently the challenge to the federal government’s ability to divvy out subsidies to enrollees on behalf of 34 states. The defense proved victorious in both challenges, which made it to the Supreme Court . . .

The individual mandate is the actionable component of Obamacare that requires individuals to purchase health insurance or face a penalty. The penalty in 2014, the first year Obamacare was fully in effect, was the greater of $95 or 1% of your modified adjusted gross income (MAGI). This year the penalty for not having insurance, which is officially known as the Individual Shared Responsibility Payment (ISRP), jumps to the greater of $325 or 2% of your MAGI. In 2016, another sizable spike to the greater of $695 or 2.5% of your MAGI. In 2017 and beyond the penalties rise on par with the level of inflation.

Why is there even an individual mandate penalty in the first place, you wonder? When Obamacare became the law of the land, one of the stipulations was that insurers could no longer pick and choose who they wanted to become members. In other words, people with preexisting conditions couldn’t be turned away. This meant that through the process of adverse selection some sick and elderly consumers who are costly to insurers would be quick to enroll, while healthier young adults, which are needed to help offset the high costs of the elderly and terminally ill, would possibly shun being forced to buy insurance. The individual mandate penalty was put into place in order to encourage younger adults to enroll, otherwise they’d have to pay a penalty come tax time. . .

Just how many people were required to pay the penalty in 2014? According to a report released by National Taxpayer Advocate via the IRS, some 6.6 million people owed an ISRP due to not having health insurance. What may have come as a big surprise to many of those who owed was the fact that the penalty was the greater of $95 or 1% of their MAGI, not the lesser. Thus, the average penalty paid by these 6.6 million people was double the lower-bound figure, $190, since their MAGI often came into play when calculating their penalties. (Read more from “6.6 Million People Just Learned the Hard Way How Much It Costs to Be Uninsured Under Obamacare” HERE)

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