What Happens to Floridians who do not Buy Health Insurance?
On June 28, 2012, the United States Supreme Court ruled in National Federation of Independent Business v. Sebelius, that the mandate in the Patient Protection and Affordable Care Act (“PPACA”) for every American to maintain health insurance was constitutional as a tax, even though the law could not withstand constitutional muster under the commerce clause because an individual not buying health care is simply not the same as engaging in commercial activity.
This ruling came despite every lower court, including Florida’s 11th Circuit Court of Appeals, previous holding that the PPACA could not be upheld as a tax because of the inexplicably clear language in the PPACA itself describing a “penalty” for not maintaining health insurance, the use of actual taxes in other provisions of the PPACA, and Congress’ clear discarding of the term “tax” found in earlier versions of the bill. Applying a tax label to the penalty was also a strained analogy in that the law does not provide for the same enforcement mechanisms that the Internal Revenue Service (“IRS”) usually wields to collect taxes. (See 26 U.S.C § 5000A(g)(2)).
Financial Implications of the PPACA
However, the crux of Sebelius is that the law will remain in effect barring legislative change. Thus, Floridians should understand the PPACA’s financial implications. Some individuals may come to the conclusion that it is still cost efficient to pay the penalty for failure to maintain health insurance under the PPACA and continue to pay out of pocket for their health care. But one can only come to this conclusion if he or she understands the financial burdens that the PPACA imposes for those who choose not to purchase healthcare as mandated.
Factors to Consider
One important fact to keep in mind is that the law does not go into effect until Jan. 1, 2014. Floridians will have at least that long to prepare. But starting on Jan.1 of 2014 under the PPACA, individuals who choose not to purchase health care and are not otherwise covered are subject to the lesser of penalties calculated either on a monthly basis (Sec. 1501(1)(A)) (discussed further below) or an amount equal to the national average premium for qualified health plans which meet certain requirements ((1) have a bronze level of coverage (the minimum coverage which represents 60% of the actuarial value of “essential benefits”); (2) provide coverage for the applicable family size; and (3) are offered through exchanges in a given calendar year (Sec. 1501(1)(B))).
Assuming a Floridian is being penalized under Sec. 1501(1)(A), the individual would be subject to paying the federal government the greater of: (1) $695 dollars for each uninsured individual (including dependents and spouses if filing jointly) or three times this amount, equaling $2,085 (whichever is less); or (2) 2.5% of taxable income somewhere above $9,750, depending on filing status. This means that at a minimum, individuals will be paying $695 per year for failure to maintain health insurance under the PPACA. For the average Floridian making $40,700, 2.5% of taxable income equates to $1,018.75. Penalties are cut in half for individuals under 18 years old. (See 26 U.S.C § 5000A(c)(3)(C)).
PPACA Penalties will be Phased in
Importantly, these numbers reflect full implementation of the law in 2016. For Floridians worried about the short-term future considering recent unemployment numbers and economic outlook, the good news is that the PPACA is phased in, with modified calculations for 2014 and 2015. In 2014, individuals are only subject to a penalty entailing the greater of (1) $95 dollars for each uninsured individual (including dependents and spouses if filing jointly) or three times this amount, equaling $295 (whichever is less) or; (2) 1% of taxable income anywhere above a range of somewhere above $9,750, again depending on filing status. In 2015 those penalties rise to $325 and 2% respectively.
As for the average national average premium for qualified health plans, no one will know the exact number until implementation beginning on Jan. 1, 2014, but the Congressional Budget Office has estimated that the bronze plan in 2016 will cost between $4,500 and $5,000 for single policies and between $12,000 and $12,500 for family policies.
Who is Exempt under the PPACA
The PPACA also exempts, or is not applicable to, certain individuals including:
(1) Members of certain religious sects in existence at all times after December 31, 1950 and that are conscientiously opposed to acceptance of benefits of any private or public insurance for either medical care or death, disability, old-age or retirement and who have filed an application for the exemption;
(2) Members of health care sharing ministries;
(3) Individuals unlawfully presiding in the United States;
(4) Individuals that are incarcerated;
(5) Individuals whose insurance coverage costs (calculated by analysis of premiums) exceeds 8% of household income;
(6) Individuals below federal tax filing threshold (guaranteed if under $9,750);
(7) Members of Indian Tribes;
(8) Individuals that did not maintain coverage for less than 3 months before acquiring coverage;
(9) Individuals that can demonstrate hardship based on the fact that there is no affordable qualified health plan available through the exchange or the individual’s employer;
(10) Individuals that can demonstrate hardship based on the fact that there is no affordable qualified health plan available through the exchange or the individual’s employer; or
(11) Individuals residing outside the United States or residents of territories.
The IRS’s Method of Collection
As stated above, the PPACA does not allow for the IRS to collect fees in its usual manner. The IRS may not file a notice of lien on any individual’s property or levy against any individual’s property. In short, the IRS cannot directly seize any of your personal or real property for failure to pay the PPACA penalty. However, under the PPACA the IRS can attempt to collect monetary judgments in court, and can also offset any tax refund against your PPACA penalty.
Most importantly, because the PPACA incorporates subchapter B of 26 U.S.C. Chapter 68, individuals that do not pay the penalty in a timely manner could face claims including twice the amount of the assessed penalties (notwithstanding any other action taken for failure to pay). (See 26 U.S.C § 5000A(g)(1)).
Floridians assessing options must price these factors into any determination before making an educated decision.
Starting in 2014, Floridians will need to determine an efficient path forward based on the law as it stands at that time and the figures presented here. Understanding the micro-economics of the PPACA penalty structure will help you to maintain control over your healthcare decisions.