Ask Emily: More Time To Avoid The Obamacare Tax Penalty

In my last column, I warned you that March 31 was your last chance to sign up for a health plan from Covered California or the private market if you wanted to get health coverage this year.  

So much for that.

You now have until 11:59 p.m. on April 15 to complete your application if you created an account on CoveredCA.com and finished the first page onlineby 11:59 p.m. on March 31. You can complete your application online or with the help of a customer service rep, insurance agent or other person who has been certified to help people enroll.

You’ll also have until April 15 if you failed to get onto CoveredCA.com because of technical problems or failed to get through its jammed phone lines. You can’t apply online at this point, but will need help from a certified enroller or customer service agent to submit your application.

How will Covered California know if you really tried? They won’t.

“We’re relying somewhat on the honor system here,” says Covered California spokeswoman Anne Gonzales.

I would never advocate lying. Ever. But I’m willing to bet that some people will take advantage of Covered California’s honor system.

You also have until April 15 to buy on the open market. But you won’t have as many choices as you did a few weeks ago, according to Carrie McLean, director of customer care for eHealthInsurance.com, because some insurance companies are not allowing new signups after March 31. 

Please note that major life changes – such as marriage, the birth of a child, divorce or loss of job-based insurance – will allow you to sign up or make health insurance changes any time of year.

And speaking of April 15, don’t forget that other, much-loved deadline: income taxes. For those of you who choose not to buy health insurance this year, the IRS will be looking to fine you next year. Here’s what you can look forward to:

Q: Why should I sign up for health insurance if the penalty is only $95?

A: This may be one of the biggest misconceptions about the Affordable Care Act.

The tax for those who don’t carry health insurance starts at $95 per adult this year (or 1 percent of annual household income, whichever is greater) and grows to $695 by 2016 (or 2.5 percent of income, whichever is greater). The penalty for children is half the adult rate ($47.50 this year) and there is a family maximum of $285 this year.

Sounds pretty reasonable.

There’s just one problem, and it’s called “whichever is greater.” The majority of Americans who don’t have insurance will fall into that category and owe hundreds, perhaps thousands, more than the flat rate of $95 per year, says Sue Ellen Smith, a tax advisor for H & R Block in San Francisco.

The IRS gives an example: A married couple with two children and annual household income of $70,000 decide not to buy health insurance this year.

Their penalty, due in April 2015, is calculated by using the amount of income above the tax- filing threshold – $20,300 for a married couple – which means the family’s penalty would be based on $49,700 (which is $70,000 minus $20,300).

One percent of $49,700 equals $497. Remember “whichever is greater”? Because $497 is greater than the family maximum of $285, that family’s penalty will be $497.

Still sound reasonable?

Q: Are there exemptions to the penalty?

A: Yes, there are many, which I described in a previous column. For instance, you don’t have to pay the penalty if you’re a member of a federally recognized Native American tribe or if you can’t find “affordable” coverage, as defined by the law.

You’re also exempt if you’re uninsured for less than three months of the year. Those of you who signed up after March 15 may be wondering if you’ll owe the penalty for April because your insurance won’t kick in until May 1.

No, you won’t. For this year only, you will avoid the penalty, but only if you signed up by the fuzzy March 31/April 15 deadline.

Q: Is the penalty prorated?

A: Yes, you will owe one-twelfth of the annual penalty for each month you or your dependents don’t have coverage or an exemption from the law.

Q: Is there a maximum penalty?

A: Yes, there is. But good luck figuring it out.

According to the IRS, the penalty is “capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.”

I have asked Covered California, the IRS, the U.S. Centers for Medicare & Medicaid Services and the U.S. Treasury Department what the actual dollar amount is, and they all kept passing the buck to each other.

I’m still trying, and I’ll let you know what I find out.

Meantime, I bet some of you would like to know more about how the government intends to enforce penalties on the uninsured. More on that next time.

Right now, the rest of you need to work on your health insurance applications and your taxes. You’ve got a deadline to meet.

Questions for Emily: [email protected]
Learn more about Emily here.

The CHCF Center for Health Reporting partners with news organizations to cover California health policy.  Located at the USC Annenberg School for Communication and Journalism, it is funded by the nonpartisan California HealthCare Foundation.