What are the requirements and how do I comply to avoid the penalty?

Mandated by the Affordable Care Act, nearly every American will be required to purchase or be covered by some form of a qualified medical insurance plan in 2014-there are a few exceptions. As of March 31, 2014, which is the end of open enrollment, if you are not covered by a qualified medical insurance plan you will pay a penalty/fine or tax.

Individuals in 2014: The Penalty is the Greater of 1% of Income or $95 Per Person

For individuals, the annual penalty starts at the greater of 1% of your annual income or $95 per person. Each year, the penalty will increase.

  • 2014: The penalty is $95 per adult and $47.50 per child up to $285 for a family, or 1% of the family income, whichever is greater.
  • 2015: The penalty is $325 per adult and $162.50 per child up to $975 for a family, or 2% of the family income, whichever is greater.
  • 2016 and Beyond: The penalty is $695 per adult and $347.50 per child up to $2,085 for a family, or 2.5% of the family income, whichever is greater. Note: after 2016, the penalty will be increased annually by a cost of living adjustment.

In 2014, the penalty is marginal. However, each year it increases. It is important that the entire country participate as the premiums are intended to offset the risk of insuring all Americans, regardless of pre-existing conditions. As previously stated, medical underwriting goes away as of 2014. In other words, no person can be denied or declined for any pre-existing conditions.

Penalty for Businesses of 50+ Employees: $2,000 Per Employee Per Year

In California businesses with less than 50 employees are not required to offer health benefits to their employees. This will not change in 2014. However, larger companies with 50 or more employees are required to offer health benefits to their employees. The new maximum waiting period for a newly hired employee goes down to just 60 days.

If an employer with more than 50 employees chooses not to offer group health insurance coverage, a penalty of $2000 for each full-time equivalent employee would be accessed. There is a calculation for part-time employees as well adding up to full-time status. Additionally, if an employer does not offer group health coverage with minimum cost exposure to the employee (9.5% of their monthly gross income) the fines will be significant. Employers are being saddled with mandated benefits and higher costs, which will increase their cost of operations. How this will affect their cost of doing business is to be determined.

Note: Small businesses with fewer than 50 employees are not required to offer health insurance, so these companies are not subject to a penalty if they do not offer health benefits.