Something Wicked This Way Comes
As we approach the dreaded tax filing deadline of April 15th, many Americans are ill-prepared for the news they are going to receive from their tax preparers or tax preparation software. Between three and six million people are going to be affected by penalties, an “Individual Shared Responsibility Payment,” associated with the Affordable Care Act. And most of those affected have no idea how much financial pain they are going to feel.
When the Obama Administration was selling Obamacare to the American people – you remember, “It’s not a tax,” “If you like your healthcare plan you can keep it,” “We have to pass the bill to find out what’s in it,” etc. – they alluded to the existence of penalties for those Americans who did not purchase ACA compliant health insurance. The amount for the first year non-compliance penalty was routinely quoted as $95. For many the choice was clear: keep the non-compliant health insurance, pay the $95 penalty (read: non-compliance tax), and hope that a Republican-led Congress would affect relief for the taxpayer as soon as they took control in Washington, DC.
But that scenario doesn’t impact this tax cycle. And while three to five million people have received subsidies through the Obamacare marketplaces to offset the cost of ACA compliant health insurance (still many more will qualify for exemptions), the penalty – or Individual Shared Responsibility Payment – for most of the three to six million Americans who opted to pay the fine and go without is going to be substantially more than they think.
Contrary to the commonly referred to fine of $95 for non-compliance, that amount is the least amount that can be imposed on an individual. The calculation used for the overwhelming majority of the non-compliant will be the higher of either one-percent of your household income above your filing threshold or a flat dollar amount up to $285 ($95 per adult, $47.50 per child). The important words to consider here are “household income.”
In the scenario where one spouse is covered by employer-sponsored health insurance but the other spouse is not – where one spouse is non-compliant, the Individual Shared Responsibility Payment is still based on the total of the household income; the compliant spouse is still entered into the penalty equation through the use of the household income as a defining integer. The idea that the ACA compliant individual cannot be adversely affected at tax time is a fallacy.
For example, let’s examine what the penalty (read: tax) would be on a Virginia household consisting of a man and a woman who, combined, made $150,000 for the year 2014. The woman is covered through her employer by ACA compliant health insurance, but the man is an independent contractor and chose to attain what used to be known as catastrophic health insurance, thus acquiescing to what he thought was going to be a $95 penalty. Using the Individual Shared Responsibility Payment calculator from HealthInsurance.org, the assessed penalty would be $1,297. A full $1202 more than the $95 for which they had planned. By contrast, a non-compliant single person making $75,000 in 2014 would have been assessed a $648.50 penalty. This means that the penalty for the “crime” of being from a household earning $150,000 with a single non-compliant spouse is $648.50; the penalty for being married to a non-compliant spouse is $648.50. The irony here is that the non-compliant spouse was still covered in the event of a medical emergency, even if he wasn’t ACA “compliant.”
The reasoning used by the Progressives and Democrats when arguing for the passage of the Affordable Care Act was that relief would be given to the healthcare system by virtue of the fact that everyone would be covered by health insurance; that everyone would be paying into the system. But having “passed the bill” so we can now “see what’s in it,” the reality of the matter is this. Obamacare was never about healthcare. It was never really even about everyone being covered by health insurance. And it wasn’t ever about everyone paying into the system. It was about creating two new revenue streams: one for the health insurance companies who now have a captive client-base, and another for the spendthrift federal government through the extraction of what the US Supreme Court has now identified as a tax.
And a heck of a tax it is…especially for the non-compliant and their compliant spouses.