Unexpectedly Intriguing!
March 24, 2015

Unlike a lot of analysts, we've always approached the Patient Protection and Affordable Care Act, which is perhaps better known as "Obamacare", from the perspective of personal finance. We care about what President Obama's "signature" achievement in office means to the bottom lines of ordinary Americans, which is to say that we care more than President Obama does about such things.

Because of that approach, we've recognized from the very beginning that for a lot of Americans, it would make significantly more sense to take a pass on buying the kind of "affordable" health insurance coverage that would be marketed to consumers in favor of paying a much more affordable "penalty" tax when they file their annual tax returns.

2014 was the first year in which Americans were mandated by the law to either pay health insurance premiums or pay higher income taxes. Let's see how real people are making that choice under the terms of the law:

WASHINGTON—A special enrollment period to obtain health insurance for millions of uninsured people who owe a tax penalty under the Affordable Care Act is off to a slow start.

The health law requires most Americans to have insurance or pay a fine at tax time. The open enrollment period under the health law ended Feb. 15, but the Obama administration said it would allow people who discover they owe a fine to sign up for coverage through April, at the end of the tax season.

Major tax-preparation firms say many customers are paying the penalty and not getting health insurance. It is still early, since the special enrollment period launched Sunday, but research also suggests that many people who lack health insurance will pay the penalty and not get covered this year.

Only 12% of uninsured people would buy policies if informed of the penalty, according to a survey of 3,000 adults polled through Feb. 24 by McKinsey & Co.’s Center for U.S. Health System Reform.

At H&R Block Inc., “our analysis indicates that a significant percentage of taxpayers whose household members were not covered for at least a portion of 2014 are opting” to pay the penalty, said Mark Ciaramitaro, a vice president of health-care enrollment services at the tax-preparation firm.

If it helps provide more insight into what's going on here, let's revisit our tool that applies specifically for those who will be making this personal finance choice during the remainder of the 2014 tax filing season. If you're considering buying health insurance between now and Thursday, 30 April 2015, our tool below will estimate what doing so may potentially cost you in 2015 (that's for 2015 only - the math won't apply for other years):

Your Household Data
Input Data Values
Year in Which Insurance Coverage Will Apply
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Subsidized Monthly Premium for the Health Insurance Plan You're Considering Purchasing (This is the amount that Healthcare.gov or your state's health insurance exchange will indicate as your cost.)

Your Annual Health Insurance Results
Calculated Results Values
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings (or Costs, if Negative)
The Bottom Line

One important thing to keep in mind is that you won't get any meaningful benefit for having health insurance until after you've paid your annual deductible, which is the amount of out-of-pocket expenses for health care services that you agree to pay as part of the coverage level you select for your health insurance coverage. That means that you could be out-of-pocket on both your premiums and your deductibles before your Obamacare policy even begins to cover a portion of your actual health care expenses, so unless you can reasonably expect that you will have such large expenses (such as if you're expecting a baby or have a pre-existing condition), you should carefully weigh our tool's results.

Here's how one real person made their choice:

Richard Gonzalez, 59 years old, of Navarre, Fla., found out he will pay a $250 penalty for going without insurance. The retired employee of United Parcel Service Inc. said he won’t take advantage of the special enrollment period because it is cheaper for him to pay out-of-pocket for health care than to buy insurance on the exchange. He said he shopped on the exchange but would have to pay $400 a month for a plan with a $6,000 deductible.

“I think it’s wrong I have to pay the penalty,” said Mr. Gonzalez. “But it beats paying more than $10,000 a year.”

Richard Gonzalez appears to be a savvy consumer - we're pretty sure that he'll be more than capable of finding an appropriate and much more affordable alternative - including some where he might even avoid having to pay the tax as well!

As for other scenarios you might consider running in our tool above, you might consider the health insurance premium costs shared by "ScottinSC" via Twitter. And speaking of which, is it any wonder that one of the Patient Protection and Affordable Care Act's and President Obama's biggest boosters in the media is no longer describing the law as "affordable" in its headlines?

We confirm then that Americans can actually do the math for themselves when it comes to the Affordable Care Act. We're just happy to have developed a timely tool for making that personal finance math a lot easier to do!

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority (such as a licensed insurance broker, medical professional or legal services provider) with specialized knowledge who can apply it to the particular circumstances of your case.

Note that we didn't include "Healthcare.gov Navigator" or "community organizer" in the category of "competent authority".

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Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.