Lifetime of PPACA penalties could cost bigNews added by Benefits Pro on March 31, 2014

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By Kathryn Mayer

Choosing to forgo insurance and instead pay a penalty under the Patient Protection and Affordable Care Act might seem like an easy — and cheaper — option for some consumers.

But that it could add up to a lot over a lifetime — up to six figures, according to new analysis.

Calculations from NerdWallet estimate that for a lifetime of PPACA penalties, individuals will pay a minimum of $36,556, and families of four a minimum of $109,668.

Higher-income uninsured, though, will pay much more. An individual making about $200,000 in 2016, for example, will pay an estimated penalty of $4,500-$5,000 for one year.

Researchers say that hefty realization, combined with the financial risk of going uninsured, “will lead many more Americans to purchase insurance in coming years.”

Under PPACA, virtually all Americans must buy health insurance or pay a penalty. In 2014, the penalty is the greater of either $95 or up to 1 percent of the portion of the person’s modified adjusted gross income that exceeds $10,150. The penalty escalates to $325 or 2 percent of income in 2015, and $695 or 2.5 percent of income in 2016.

Because penalties will rise steeply in the next few years, NerdWallet predicts sign-up rates will jump in 2015 and 2016 as penalties increase.

For many higher-income uninsureds, paying the penalty will cost the same as buying insurance, meaning there will be no financial incentive to go uninsured, they said.

“Even lower-income individuals and families will end up paying hundreds, even thousands, of dollars per year in penalty fees in coming years,” said Christina LaMontagne, vice president of health at NerdWallet. “This will create a significant financial burden for this population, increasing the incentive to instead purchase insurance.”

Other surveys have revealed the uninsured have remained either cautious, confused or not at all concerned about signing up for coverage.

A Bankrate survey, for example, found that more than a third of uninsured Americans (34 percent) don’t plan on buying health insurance, despite the law’s requirement to do so.

To estimate the “lifetime” sum of tax penalties, researchers used two methods:
  • Based on projected future inflation rates, individuals will pay a minimum of $36,556 and families of four will pay a minimum of $109,668 in total tax penalties. This estimate assumes a 2 percent increase in cost of living each year.
  • Based on historical cost-of-living data, individuals will pay a minimum of $42,077 and families of four a minimum of $126,231 in total tax penalties. This estimate assumes a 2.78 percent increase in cost of living.
  • Both methods represent the minimum sum because the calculations are based on the flat-fee for the penalty, rather than the penalty based on percentage of income.
Their “lifetime” of penalties calculates begins at age 27, the age at which a young American is no longer eligible to remain on a parent’s health insurance plan, and extends through age 64 because at age 65, Americans qualify for Medicare.

Overall, NerdWallet said, the penalties will work to get more uninsured enrolled.

“Regardless of whether or not the government’s enrollment goals are reached in 2014, the long-term outlook for uninsured rates is positive,” LaMontagne said. “Between elevated awareness about the importance of health insurance, the ironing out of marketplace kinks, and an increasingly large disincentive to going uninsured, many Americans will seek out and obtain affordable health insurance —ultimately leading to decreased health costs and increased health awareness on a national level.”

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