health insurance tax Archives

Think You’re Safe From The Health Insurance Tax? Think Again!

Previously, if Americans did not have health insurance, they would face a penalty, or tax, called the individual mandate penalty. Thanks to the Tax Cuts and Jobs Act, the penalty no longer exists. However, some states still have the ability to penalize people for not having health insurance.

womans hands with a calculator on top of an open laptop. — *Although the individual mandate is gone, some states will tax you for not having health insurance.*

Massachusetts, New Jersey, and Washington D.C. will hit you with a penalty for not having health insurance. Other states (California, Rhode Island, and Vermont) are joining the bandwagon and creating a health insurance coverage mandate for 2020. So if residents do not have health insurance in 2020, then they will pay a penalty in 2021.

Exemptions

States will allow exemptions, thankfully, to help certain people avoid the penalty. The circumstances include low income that falls below the state tax filing threshold.

How Much Is The Penalty?

The penalty ranges in different states. They are:

silhouette of a man shaking another man upside down with money falling out. — *If you live in one of the states that impose a health insurance tax, be prepared for the penalty if you do not have health insurance.*

California- A flat amount of $695 per adult or $347.50 for each child. California can charge you 2.5% of gross income in excess of the state’s filing threshold, whichever is higher.
Massachusetts- The penalty is based on the household income, and can range from $264 per year to $1.524 per year. Individuals with income at or below $18,210 ($37,650 for a family of four) aren’t penalized
Washington D.C.- The penalty is $695 per adult, or $347.50 per child. Washington can also assess a penalty of 2.5% of household income, whichever is higher.
New Jersey- The penalty is based on household income as well. Individual taxpayers without coverage could be on the hook for at least $695, and up to a maximum of $3,012.
Vermont– Vermont is one of the states jumping on the bandwagon, so they have not determined the penalties yet.
Rhode Island- The penalty is a flat tax of $695 per adult and $347.50 per child, or 2.5% of income above state filing threshold, whichever is greater.

Getting Ready

When the time comes to file your tax paperwork, make sure you have all the appropriate forms handy that prove you had health insurance coverage. There should be a number of forms in the mail coming to taxpayers (Forms 1095-A, 1095-B and 1095-C) that detail whether you and your family members had coverage throughout the year.

Luckily only a few states are imposing the tax penalty for not having health insurance, but for those who do live in these states, be prepared. Know that there is a penalty so you are not blindsided, and if you opt out of insurance, then be prepared financially to pay the penalties.

Get Ready For The 2020 Health Insurance Tax

Insurers were given a pass in 2019 by Congress regarding their annual health insurance tax. The reason was that the government was concerned about consumers’ out-of-pocket costs. However, if the ACA’s health insurance tax resumes as planned, this ‘free pass’ might be over and insurers will face a $15.5 billion tax bill in 2020. The health insurance tax

Silhouette of a man holding another man upside down with money falling out. — *Insurers might face a $15.5 billion tax bill in 2020, meaning health insurance premium costs will go up at least 2% next year.*

was created to fund the implementation of the ACA’s marketplace exchanges. For consumers, this means that insurers will raise premiums by more than 2% if the tax is implemented by the IRS.

Health Insurance Tax Over The Years

Oliver Wyman Actuarial Consulting recently analyzed the projected impact of the health insurance tax on health insurer premiums over the next 10 years. They found that premiums are likely to increase by 2.2% in 2020.

The tax started at $8 billion in 2014, increased to $11.3 billion for 2015-2016, and had a suspension in 2017. The tax was then reinstated at $14.3 billion in 2018, and then given another suspension for the year of 2019.

Who It Applies To

A fully-insured health plan is the more traditional way to structure an employer-sponsored health plan. With a fully-insured health plan: The company pays a premium to the insurance carrier. The health insurance tax applies to all insurers offering fully-insured coverage. This goes for :

on-exchange and off-exchange individual markets
large and small group markets
insured public programs such as Medicare and Medicaid.

The Rise In Premiums

Premium increases will vary by state. However, premiums are expected to increase annually anywhere from $154 to $479. A person in the individual market can face a $196 increase. A person in the small group market can expect a $154 increase, while a family of 4 faces a $479 increase. As for families in the large group market, the increase for an individual will be about $158, while a family faces a $458 increase.

Two arrow signs in yellow. The top one says health and points right, the bottom one says illness and points left. — *The rise in premium costs might cause a lot of people to opt out of insurance, throwing off the risk pool.*

The Outcome Following The Tax

If the tax is implemented and is as high as almost $16 billion, then increased tax burdens on small employers will follow. Fully-insured small employers will face the repercussions, while private and self-insured public employers will not. Employers are not the only ones who will have to pay for the tax increase. State taxes will go up for everyone in order to cover the increased tax on Medicaid.

More importantly, many people might opt out of insurance due to the increase in premium costs. Healthier individuals opting-out will cause an imbalance in the risk pool, meaning higher premiums for the (less healthy) people who are insured.

As of now, there is no definitive answer if the tax will be implemented in 2020. Congress is considering bipartisan legislation that would suspend the tax through 2021, but it is not a guarantee. If the health insurance tax is implemented, insurance rates and premiums will be more expensive than it already is.