The Affordable Care Act (colloquially known as “Obamacare”) created the Individual Mandate that requires every American to purchase insurance or pay a penalty to the federal government.

This provision was hotly contested and challenged many times but ultimately the Supreme Court upheld the mandate. As a consequence, Americans must report on their taxes whether they were covered for all 12 months of the tax year. Those who did not have coverage the entire year are subject to the penalty.

How Much Is The Penalty?

In 2014, individuals who opted not to buy health insurance were charged $95 or 1% of their total income, whichever amount was higher. Slowly, the fine climbed to $695 or 2.5% of income for 2017.

The government has not yet announced the penalty amount for 2018 but many predict the penalty will be the same as 2017 or higher. As the open enrollment period draws closer, Americans are unable to calculate whether being uninsured in 2018 will be less expensive than paying for coverage.

What If I Cannot Afford The Premiums Available To Me?

Fortunately, there are several exemptions to the individual mandate. Thus, it is possible to not buy health insurance and not pay a penalty to the government.

Because premiums are expected to skyrocket in 2018, you may be eligible for an exemption if the cheapest health insurance plan available to cost more than 8.13% of your income.

Additionally, if your income is low enough that you are not required to file income taxes (less than $10,350  for individuals or $20,700 for those filing jointly) you will not be subject to the penalty for being uninsured.

There are a variety of other exemptions available to Americans without insurance. To read the full list of exemptions, visit healthcare.gov.

Will I Have To Pay The Penalty If I Have Short-Term Coverage?

Most likely, yes.

President Trump’s latest executive order lifted restrictions on short-term coverage plans. Short-term coverage plans are a cheaper alternative for those who cannot comfortably afford the plans available on the government-run exchange, but those who choose a short-term coverage plan will still be subject to the penalty.

Because short-term coverage plans are not purchased on the government-run exchange, individuals who choose these plans are still considered “uninsured” under Obamacare. If you are considering a short-term coverage plan to save money in 2018, do not forget to factor in the penalty when calculating finances.

Those who choose short-term coverage policies can avoid the penalty if they purchase a plan from the government-run exchange before the short-term policy ends, avoiding a lapse in coverage.

If you would like to know more about how the individual mandate penalty may affect your finances in 2018, do not hesitate to reach out to us.