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Second Opinion: Is It Cheaper To Pay The Fine Than To Buy Coverage?

Second Opinion: Is It Cheaper to Pay the Fine Than to Buy Coverage?

Above: Toby Hayes is concerned about how the Affordable Care Act will impact his budget for his family of eight. Video by Brian Myers, Media Arts Center San Diego.

Aired 9/10/13 on KPBS News.

A Rancho Peñasquitos family of eight looks at how the Affordable Care Act will impact its budget.

Second Opinion is a weekly Q-and-A series that answers questions from San Diegans on the Affordable Care Act. Ask yours here.

The Question: Is it cheaper to pay the fine than to buy coverage for an individual?

Toby Hayes is a San Diego banking executive. His office is decorated with photo collages of his six young children and wife.

Special Feature Speak City Heights

Speak City Heights is a media collaborative aimed at amplifying the voices of residents in one of San Diego’s most diverse neighborhoods. (Read more)

Special Feature Second Opinion

As his family has grown over the years, so have his expenses. Next year presents a major financial challenge: He has to start paying down his student loans at the same time the Affordable Care Act will require him to take out an insurance policy for his wife, who is currently uninsured.

Here's Hayes' question:

"My question is, I have six children in my household and [we're] covered by insurance by my employer. My wife, who stays home with our children, is not covered. What would the penalty be if we opt to not get coverage for my wife next year?"

The Takeaway: The fine is often cheaper, but it depends on your income.

Obamacare requires all individuals to have health coverage next year or pay a penalty. The rule is often called the "individual mandate," but the federal government prefers "individual shared responsibility provision," a subtle reminder that the new insurance policies will only work if enough healthy people pay into them.

But there are some exceptions to the provision:

  • Individuals who can't find plans costing within 8 percent of their incomes
  • People who make so little they don't file taxes
  • Individuals with a coverage gap of three or fewer months
  • People who don't have legal immigration status
  • Indian tribal members and their dependents
  • Members of certain religious sects or health care sharing ministries
  • Individuals who are incarcerated

If individuals don't qualify for an exemption, they'll have to pay $95 or 1 percent of their income, whichever is more, when filing their 2014 taxes. The fine increases to $695 or 2.5 percent in 2016.

Whether those figures are cheaper than buying health insurance depends a lot on income and household size. If Hayes makes $55,000 to support his family of eight, his wife qualifies for substantial subsidies on the Covered California insurance exchange. Annually, he could pay as little as $1,032 to cover her. By 2016 the fine for Hayes would cost $1,375.

But as income increases, subsidies decrease and the annual cost of insurance slowly ticks above the cost of paying the fine.

How exactly do you pay the fine? It will be folded into your tax filings beginning with tax year 2014.

The Orders: Know all the rules.

Here's an important reminder if you're thinking about skirting the individual mandate: You can't necessarily enroll once you become sick.

Yes, the law says insurance companies can't withhold coverage because of pre-existing conditions, but you can only get insurance during open enrollment periods. In other words, if you get sick in April, you could have to wait until October to get coverage.

And a rule of thumb: Explore all of your options before deciding to take the penalty rather than buy the insurance. The Affordable Care Act has extended access to affordable coverage in ways many people might not expect.

If Hayes makes just $1,000 less than the example used above — so $54,000 — his family would qualify for Medi-Cal, which is significantly cheaper than paying the fine.

Check out last week's Second Opinion: How Do College Students Fit Into The Obamacare Exchanges?

Comments

Avatar for user 'Eddie89'

Eddie89 | September 10, 2013 at 8:08 a.m. ― 1 year, 1 month ago

How could you NOT have health insurance for your wife!? Especially since she's the caregiver for six children! That alone is saving a lot of money by not paying for daycare for six kids.

I would take a look at all of my expenses and eliminate any unnecessary expenses and do whatever I could to ensure that my spouse had health coverage.

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Avatar for user 'swoolley'

swoolley | September 10, 2013 at 12:36 p.m. ― 1 year, 1 month ago

Saying his wife is healthy & doesn't need health insurance is like saying it's 'safe enough' for his wife play to Russian Roulette because there's only one bullet in all the chambers. Does the fine justify the gamble? Six kids.

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Avatar for user 'CaliforniaDefender'

CaliforniaDefender | September 10, 2013 at 2:21 p.m. ― 1 year, 1 month ago

"...the new insurance policies will only work if enough healthy people pay into them."

===

So the exceptions are:

o People who make so little they don't file taxes (150 million)
o People who don't have legal immigration status (12 million)
o Indian tribal members and their dependents (5 million)
o Individuals who are incarcerated (2 million)
o Individuals with a coverage gap of three or fewer months (? millions)
o Individuals who can't find plans within 8 percent of their incomes (? millions)
o Members of certain religious sects (? millions)

So not counting the untold millions in the last three categories, 56% of Americans are exempt. Is that really correct?

This federal plan to force some, but not all, to buy insurance will fail. Not enough healthy young people will enroll and the entire system will collapse.

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Avatar for user 'dialyn'

dialyn | September 10, 2013 at 3:37 p.m. ― 1 year, 1 month ago

I am flabbergasted that people still pretend that no one ever gets sick, no one ever has an accident. If you have six children in the house, you need to be healthy and not count on the silly notion that you can beat the odds. I just hope they aren't planning on have child #7 in the next year with no health insurance.

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Avatar for user 'Peking_Duck_SD'

Peking_Duck_SD | September 10, 2013 at 9:29 p.m. ― 1 year, 1 month ago

You can't exempt yourself from the health care system.

If you have a body, you have liability.

I don't care how healthy you are, you need health insurance.

My solution would be make Medicare universal, for people of every age, for every citizen or legal resident of this country.

Allow supplemental plans for those who want "Cadillac" coverage and let corporations compete with benefits by offering supplemental gold-standard coverage, but the government should just give EVERYONE basic coverage along the lines of Medicare.

It would solve many many issues.

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Avatar for user 'Peking_Duck_SD'

Peking_Duck_SD | September 10, 2013 at 9:55 p.m. ― 1 year, 1 month ago

"Toby Hayes is concerned about how the Affordable Care Act will impact his budget for his family of eight. "

So you reproduce eight times not planning on any health needs of those eight human beings you bought into the world??

Shame on you.

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Avatar for user 'benz72'

benz72 | September 11, 2013 at 7:20 a.m. ― 1 year, 1 month ago

"So you reproduce eight times not planning on any health needs of those eight human beings you bought into the world??"

Reproduce 6 times, for a total of 8 family members. Other than thoat though, I agree that it is irresponsible to burden society with children one is not able to care for.

Just giving everyone free healthcare would (is) also create a lot of issues, like insolvency, which will come up next month when we will threaten to stop paying debts.

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Avatar for user 'SoCalMediaSurfer'

SoCalMediaSurfer | November 21, 2013 at 10:11 a.m. ― 11 months, 1 week ago

I agree that this plan will ultimately fail, it cannot be a "Mandate to all Americans" and be fair for any if there are so many millions of people exempted. Of course, the lawmakers, can't forget them, they are ALL exempted, aren't they? WHO exactly is this kind of plan benefiting and how much of our private, title 13 information will they be sifting through to find the " offenders" to fine?

This plan has so many holes, glitches, problems and complexities that it will be literally YEARS before it is even workable, they are backing off on promises left and right, pun intended. It is not a good thing to give something with one hand and take away with the other, we teach this to our children from birth on, so our government needs to go back to school and learn some rules itself.

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