You may have heard that people who don't have health insurance will have to pay a penalty under the Affordable Care Act, sometimes called "Obamacare." The idea behind the penalty is to encourage everyone to get coverage. If every American buys insurance, healthcare costs will be spread out across both healthy and sick people.
How Will the Government Know if You Have Insurance or Not?
The Internal Revenue Service (IRS) will collect information about your health insurance status when you file your federal tax return. You will need to show that you have health insurance, have an exemption, or submit a tax penalty payment in order to file your 2014 tax return.
Who Is Exempt From the Penalty?
According to the Centers for Medicare and Medicaid Services, people who will not have to pay the penalty include those who:
- Are uninsured for less than three months of the year
- Are determined to have very low income and coverage is considered unaffordable
- Are not required to file a tax return because their income is too low
- Would qualify under the new income limits for Medicaid, but their state has chosen not to expand Medicaid eligibility
- Are a member of a federally recognized Indian tribe
- Participate in a healthcare sharing ministry
- Are a member of a recognized religious sect with religious objections to health insurance
- Are in prison or other similar institution or correctional facility after the disposition of charges against you 
- Have received a hardship waiver through a health insurance exchange 
- Are not lawfully present in the United States, are residing outside the United States, or are a resident of a possession of the United States 
You May Already Be Covered
Qualified coverage meets the minimum coverage that the ACA requires. You have qualified coverage if you have healthcare coverage in 2014 through any of the following sources:
- Children's Health Insurance Program (CHIP)
- TRICARE or another veterans' healthcare plan
- Peace Corps Volunteer plan
- Employer healthcare plans including COBRA and retiree plans
- Any health insurance you already have on your own
- Any health insurance you have through the marketplace, or exchange, available starting in October 2013, with the insurance taking effect in January 2014
Know the Penalties
If you are not exempt and do not buy insurance, you will have to pay a penalty. The amount you pay will increase from 2014 through 2016:
- 2014: $95 for each adult and $47.50 for each child up to $285 or 1% of your family income, whichever is higher
- 2015: $325 for each adult and $162.50 for each child up to $975 or 2% of your family income, whichever is higher
- 2016: $695 for each adult and $347.50 for each child up to $2,085 or 2.5% of your family income, whichever is higher
The Congressional Budget Office (CBO) estimates that about 6 million people will pay the penalty in 2016. The money generated by penalties helps pay for the benefits provided by the ACA.
Businesses Also Face a Penalty
Businesses with 50 or more full-time workers also will have to pay a penalty if they don't offer health insurance. The ACA defines full-time as working at least 30 hours per week. The penalty, called the Employer Shared Responsibility Payment, will start in 2015. Companies that don’t offer insurance will be fined $2,000 for each full-time employee, not counting the first 30 employees.
However, even businesses that do offer insurance might still have to pay a penalty. A penalty applies if employer-based health insurance is inadequate or too expensive. A plan is inadequate if it does not cover at least 60% of an employee's healthcare expenses. A plan is too expensive if premiums exceed 9.5% of the employee’s household annual income. These businesses will have to pay $3,000 for every full-time employee who qualifies for premium assistance through a health insurance marketplace.
- The Affordable Care Act includes a penalty for not having insurance. Certain people are exempt from having to pay this fine.
- If you are not exempt, the penalty you pay will go up each year through 2016.
- Employers may have to pay a penalty if they don’t offer insurance or if they offer insurance that is inadequate or too expensive.