Obamacare: Buy or Pay the Penalty?

Healthcare, Insurance, Living & Spending
on July 28, 2013

The Patient Protection and Affordable Care Act, commonly known as Obamacare, is a federal overhaul of the United States healthcare system. The main goal of Obamacare is to decrease the percentage of the American population which is uninsured, although this can mean increasing the cost of healthcare, at least temporarily. In these times of changing regulations and healthcare costs, it is even more important for individuals to educate themselves about their healthcare options and ways to minimize the cost to themselves.

What Are the Options?
Under the new regulations, there are two basic options for American citizens when it comes to healthcare. Individuals can choose to pay for coverage under Obamacare, which can mean increased premiums, or pay the penalty. The penalty itself is $95 or one percent of income, and the individual has to pay the higher of the two. Generally, one percent of income will be much lower than paying for Obamacare itself.

Psychology of the Options
Generally, it is predicted that most people will rather opt to pay for Obamacare rather than paying the fine. This is because of a principle known as loss aversion, where people prefer the option that avoids the loss even when the loss itself is negligible. For the most part, however, the government predicts that the majority of the population will choose to pay for healthcare coverage under Obamacare. The government is subsidizing some of the costs for individuals, and individuals will also buy the insurance because it is a fundamental need. Furthermore, individuals may also give in to peer pressure as Obamacare becomes more and more integrated into the healthcare system and society in general. In addition, the penalty itself will rise as time passes, increasing to up to 2.5 percent in 2016.

Timeline
Obamacare will be established in a series of measures, the last of which take effect in 2020. By January 1, 2013, wages and income greater than $200,000 will be subject to a tax of 0.9 percent, while there will be an additional Medicare tax of 3.8 percent on unearned income. The penalty of 1 percent of income will begin in January 1, 2014, and increase to 2.5% by 2016. Insurers are also prohibited from establishing annual spending caps, as well as prohibited from discriminating against or charging higher for individuals with pre-existing conditions. By January 1, 2018, there will be a 40 percent excise tax on premium, high cost (Cadillac) insurance plans.

The Bottom Line
There is no clear-cut option that is optimal for every single individual; a large part of the choice will fall on individual opinion, view of healthcare as well as financial situation which may dictate the ultimate cost of Obamacare. Overall, Obamacare makes healthcare insurance much more affordable for individuals who may not have been able to pay for insurance currently. Singles under 30 can also opt to only pay for catastrophic coverage, and most people who earn a high income would probably pay for healthcare insurance anyway, since the penalty is higher for them. It is important to note that the government doesn’t have very much power in enforcing the penalty at all; the Internal Revenue Service is specifically prohibited from enforcing the penalty aggressively by Section 1501 of the Affordable Care Act, which states that “taxpayers shall not be subject to any criminal prosecution or penalty” regarding the fine. Therefore, the IRS can only get the penalty from tax returns, and there is no fear of criminal punishment for neglecting to pay.

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