March 31st, the deadline for enrolling in healthcare coverage under the Affordable Care Act, is fast approaching. If you are one of the millions of people who have chosen not to enroll, you may want to re-think that decision. The consequences of not enrolling by the deadline may be greater than you think – there’s much more to it than the tax penalty you’ve heard about.

You’re responsible for all of your medical expenses.

In the pre-Obamacare era, if you needed extensive healthcare and were not insured, you might qualify to receive benefits through Medicaid, providing you protection from the potentially catastrophic impact of unforeseen healthcare expenses.

That protection is no longer available. As of this year, if you are uninsured, you will be required to pay 100% of your medical expenses, regardless of how extensive they are and what your financial means are. There is no limit to the amount you may be charged for medical services.

You can’t enroll later.

If you don’t enroll and you become sick later in the year, you cannot simply choose to enroll in a plan at that time. You will need to wait until the next open enrollment period (November 15, 2014 to February 15, 2015) or until you have a qualifying life event, such as marriage or loss of a job.  While it’s true that you can’t be denied coverage because of a pre-existing condition, you can be denied if you try to apply outside the annual open enrollment period without experiencing a qualifying life event.

And about that penalty . . .

The penalty for not enrolling may not seem so significant now, but did you know it increases every year?

In 2014, the tax is the greater of:

  • 1% of your annual household income; or
  • $95 per adult ($47.50 per child under 18), up to $285 per family.

In 2015 it’s 2% of income or $325 per person. In 2016 and later years it’s 2.5% of income or $695 per person. After that it’s adjusted for inflation.

How do you avoid the financial risks associated with not enrolling?

Well, you could just be sure to stay safe and healthy throughout the year, but that’s not exactly within our control. So, to be sure you won’t be saddled with unexpected expenses, you should enroll before March 31 – or, at least begin the enrollment process by then.

If you are uninsured for part of the year, you will be required to pay 1/12 of the annual fee for each month you were uninsured – unless the uninsured period was less than 3 months.

For 2014, if you enroll by March 31, you will not be charged a fee for any month before your coverage began.

What kind of coverage do you need?

You must have “minimum essential coverage.” This means an employer-sponsored plan, most government-sponsored plans (like Medicare, Medicaid, and TRICARE), or a plan purchased in the individual market or a state or federal exchange (like the Marketplace).

Standalone plans covering vision or dental care only do not count as minimum essential coverage.

If you don’t enroll . . .

To summarize, there are three main implications for not enrolling for coverage by March 31, 2014:

  • You’ll pay a tax penalty for each year that you don’t have coverage and that penalty will get higher after 2014.
  • You’ll be responsible for all of your medical expenses – regardless of your financial situation or how extensive your medical bills become.
  • You will not be able to get coverage, even if you get sick and decide later that you need it. The first opportunity you’ll have to enroll will be the next open enrollment period (November 15, 2014 to February 15, 2015), unless you experience a qualifying event like marriage or a job change.

When you file your 2014 federal income tax return, you will be required to demonstrate that you had minimum essential coverage during 2014, or that you qualified for an exemption to this requirement. If you cannot prove that you had coverage or an exemption, the fee will be collected along with your federal income tax.

Thoughts?

What do you think of these financial impacts and how they’ll affect uninsured individuals? Does this make you think twice about choosing to go without coverage? Let us know by leaving a comment.

Visit us at www.bellassoc.com.

This article refers to all regulations issued through March 26, 2014.  It is intended to be a summary of important issues and should not be considered legal or tax advice.

© Bell Associates and “Ask the Professionals,” 2014. Unauthorized use and/or duplication of this material without express and written permission from Bell Associates is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Bell Associates and “Ask the Professionals” with appropriate and specific direction to the original content.

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