Ken Carlson

County Pulse: Tax penalties in 2016 are painful for those without health insurance

The tax penalties under the Affordable Care Act are getting steep for the holdouts who still don’t have insurance.

Single adults who are uninsured for more than three months in 2016 will owe at least $700 to the Internal Revenue Service unless they qualify for an exemption. The penalty, based on income, could be almost $2,500 for a person earning $100,000 a year.

A family of four could face a $2,085 assessment, or it could be $2,500 or higher for a family with annual earnings of $100,000 or more.

The average household penalty is expected to be $969, almost a 50 percent jump over 2015, according to the Kaiser Family Foundation.

California residents who don’t have employer-provided insurance have until Jan. 31 to get affordable coverage for 2016 through the state-run health exchange known as Covered California.

“We want everyone to understand the new connection between health care and taxes,” said Covered California Executive Director Peter Lee, who held a teleconference Wednesday on the enhanced penalties.

The Affordable Care Act, signed by President Barack Obama in 2010, made health insurance available for all – and mandatory. State exchanges, such as Covered California, were established for providing health plans at subsidized or market rates for eligible consumers.

The tax penalties for the uninsured were relatively small in 2014, which was the first year of the individual mandate. They increased last year and now carry a real sting for those who remain without insurance. The tax penalties do not apply to seniors age 65 or older, who are eligible for Medicare.

For 2016 income taxes (paid next year), the IRS penalty may be 2.5 percent of household income, capped by the national average cost of the least-expensive health plan sold on exchanges. A second way to figure the penalty is $695 per adult, plus $347.50 for each child in the household, with a maximum set at $2,085.

The IRS collects whatever amount is highest.

With the Nov. 1 start of the current enrollment period, Covered California estimated that about 600,000 residents were in danger of being penalized. More than 230,000 have recently signed up with the exchange, leaving about 420,000 who could be assessed. Lee explained that about 78 percent of the uninsured are assessed penalties, while 22 percent qualify for an exemption because the insurance cost is more than 8 percent of their income.

Lee said the greatest risk for the uninsured is not tax penalties but enormous medical debt. An emergency room bill for a back injury requiring an MRI could be $12,000. The cost can be $35,000 for an uninsured person who needs surgery for a broken bone, or thousands of dollars a day for a person treated for illness in a hospital bed.

“It’s a huge roll of the dice that consumers do not need to take because of the financial assistance that is available to help bring quality health care coverage within reach,” Lee said.

Consumers should be aware that low-cost bronze plans through Covered California won’t cover emergency room visits or hospitalization in 2016 until the customer reaches the out-of-pocket maximum of $6,000 for individuals or $12,000 for families. A silver plan provides better coverage, though it may be less affordable for lower-wage earners.

Friday is the last day to sign up for insurance that begins Feb. 1. For those enrolling between Jan. 16 and Jan. 31, the health coverage will begin March 1.

Enrollment assistance is available from insurance agents, certified counselors or Covered California at 800-300-1506. The “Shop and Compare” tool at shows the health plan options available for consumers.

Ken Carlson: 209-578-2321