The Affordable Care Act mandates that most Americans have health insurance with Minimum Essential Coverage for at least 9 months in any calendar year. Failure to comply could mean paying a fee, fine, tax or penalty.
This means that if you do not purchase qualified healthcare coverage you may be subject to paying an IRS-imposed Obamacare fine.
Even the Name is Confusing
This controversial payment goes by various names which adds to the confusion. The official term, as it’s written into the law, is the Shared Responsibility Payment and the IRS uses this language on their website.
Healthcare.gov refers to the Obamacare penalty as, “the fee” and the Supreme Court has basically determined it to be a tax when ruling on the law’s constitutionality. Most people logically call the payment a penalty or a fine.
Read what the IRS has to say:
Regardless of the name, the law’s individual mandate took effect on January 1st, 2014 when Americans started receiving Obamacare coverage.
Why is There a Penalty?
The Obamacare fine was built into the law for a few reasons. This highly unusual federally-imposed penalty is there to encourage you to get insured. In other words, the government wants you to participate in the Affordable Care Act.
Obamacare, in order to function as intended, requires that a broad segment of the population obtain healthcare coverage. The young and healthy, in particular, must signup for the Affordable Care Act to be considered a success.
Either Participate for Pay Up
Quite simply, it was decided that an Obamacare penalty needed to be imposed as a way to motivate people to obtain coverage.
The thinking is that without a strong incentive to carry health insurance, folks will forgo this significant monthly cost until they actually require medical attention.
Another Reason for the Fine
Individuals that do not sign up for Minimum Essential Coverage will be contributing to Obamacare by way of a penalty. So, the law has a way to pay for the Affordable Care Act even without healthcare premiums.
Unless you can find an exemption that’s applicable to you, refusing to sign up for coverage doesn’t mean you aren’t contributing. The Obamacare fine is another revenue source for funding.
Gradual Penalty Increases
The government is phasing in the Obamacare fine. Each year, this controversial penalty has increased as a percentage of household MAGI, which arguably creates more incentive to secure health coverage.
The first year of implementation, 2014, imposed a rather mild Shared Responsibility Payment for going without health insurance. The 2015 fine, however, caught more attention since it effectively doubled.
Fines Becoming Significant
The 2016 Obamacare penalty was, once again, raised from the previous year. This goes for both the flat rate amount as well as the percentage of income calculation for higher earners.
It’s clear that taxpayers are really starting to feel the financial burden of not obtaining a healthcare plan. It remains to be seen if this will work to increase ACA enrollments.
Proposals for Higher Penalties
Some say that Obamacare fines have not be harsh enough. There are policy experts who claim that higher penalties are needed to significantly increase signup rates.
They contend that broader participation in combination with much higher punitive fines will ensure that Obamacare is a success.