Under the Affordable Care Act, if you don’t buy health insurance, you automatically face a hefty penalty, right?
Not necessarily.
In fact, nearly three of four of the uninsured who have already filed their 2015 tax returns using a popular tax preparation software were able to claim an exemption to shield them from the fine, according to data released this week by Intuit, parent company of TurboTax.
During the recent enrollment period for 2016 plans through the federally mandated ACA marketplace, the threat of penalty was one of the strategies employed to recruit the millions of people who still are uninsured. For those now filing their taxes, the penalty for 2015 is as much as $975 for a family. That is more than triple the penalty of the year before, and for 2016 it will rise sharply to $2,085.
But many may not know there can be wiggle room.
The U.S. Internal Revenue Service said in a report to Congress last month that about 12.4 million uninsured filers claimed one or more exemptions from the penalty for 2014. And there were presumably many more who didn’t know they could. The IRS has acknowledged 300,000 letters went out to taxpayers who had paid the penalty but probably did not need to. Those people are urged to file amended returns.
The IRS declined to make anyone available for this story or provide information about how many Texas taxpayers qualified for an exemption.
A spokeswoman for the federal Centers for Medicare and Medicaid, which has been at the forefront of ACA enrollment efforts, said Thursday there is no mixed message.
“Our focus is getting people covered. We believe signing up for health coverage is the right choice for most people, but it’s important that people understand their options so they can decide what’s right for their families,” spokeswoman Lori Lodes said.
Hardship criteria
Rachel Shumaker, Texas communications director for Enroll America, said all people considering enrollment are told that if they don’t have insurance they could be penalized but are also told they could potentially qualify for an exemption.
“We’re glad the exemption exists to protect people who don’t have an affordable option, but the vast majority of the consumers we talk to aren’t looking for an exemption. They’re looking for an affordable way to give their family the security that comes with a quality insurance plan,” Shumaker said.
The IRS said about 7.9 million uninsured taxpayers paid about $1.6 billion in penalties for 2014, typically out of their refund. The average amount of the penalty was $210 and most still got a refund, the tax agency said in its report to Congress.
The increasing penalties for not having health coverage are part of the carrot-and-stick approach the health care law takes to boost numbers and ultimately dilute risk. For most tax filers it is a non-issue. If they have insurance they can simply skip over that part of their return.
But for some of the nation’s uninsured – especially those with low incomes – there are exemptions from penalty if they meet certain financial hardship criteria such as being homeless or in jail, declaring bankruptcy, getting evicted, having steep medical debt or not being able to find affordable insurance in their area.
The calculation for the latter translates to an employer or exchange plan that costs more than 8.05 percent of household income, according to the U.S. Internal Revenue Service.
There are less well-known possibilities for exemption, including being a victim of domestic violence or member of a recognized Indian tribe. Or for having a religious opposition to insurance. There’s an exemption for those who spent most of the year in another country, had an immediate family member die, or were caring for an ill or aging relative. Taxpayers can even get a pass if their utilities were shut off or they were the victim of a fire, flood or natural disaster, according to healthcare.gov.
Coverage gap
And then there is one of particular note in Texas. The exemption covers some uninsured low-income taxpayers who live in a state that did not expand Medicaid. Texas leads the nation in the number of uninsured and is one of 19 states whose leaders have rejected Medicaid expansion.
The exemption is for those who fall in the “coverage gap” in which they earn too much to qualify for existing Medicaid but not enough to take advantage of the federal subsidies on the exchange to lower premiums. More than 750,000 Texans are in the coverage gap, according to the Kaiser Family Foundation.
“The way I see it, the exemption is there as a way to not penalize the low-income residents in states that have elected not to expand Medicaid,” said Michelle Castillo, southern policy director for the Young Invincibles, a group that works to give young adults a voice in health care issues.
Some of the exemptions are available only from the marketplace, while others must be claimed on a tax return, according to the IRS.
Debra Hammer, a TurboTax spokeswoman who specializes in ACA requirements, said her company has tweaked its software to scan for possible exemptions.
“There are people out there who might not be aware of exemptions they could be eligible for and end up paying a penalty,” she said this week. “For many, a tax refund is the biggest paycheck of the year, and we want to make sure they keep their hard-earned money.”