The Affordable Care Act requires most Americans to have healthcare coverage. Unless you don’t have to file taxes or you qualify for an exemption, you’ll likely get stuck paying a penalty called the individual shared responsibility payment if you don’t have health insurance. You could also be on the hook for paying the fine if your health insurance isn’t considered minimum essential coverage. We’ll explain what this government standard means and how you can meet it.
Check out our tax calculator.
Minimum Essential Coverage: The Basics
Health insurance is now mandatory for just about everyone. But merely having coverage isn’t enough to save you from paying the healthcare penalty. In fact, if you don’t have minimum essential coverage, you could owe the government some extra money when you file your federal income taxes.
When you have minimum essential coverage (MEC), your insurance plan includes basic benefits in at least 10 different categories. In order for a healthcare policy to have MEC, (whether it comes from the Marketplace, the government, an employer or directly from a private company) these essential health benefits must be provided. Five of them include lab services, hospitalization, emergency room visits, prescription drugs and care for pregnant women and newborns.
The other essential benefits are pediatric care, preventive services, mental health and substance abuse services, rehabilitative services and outpatient care.
Insurance Plans With Minimum Essential Coverage
If you have one of the following health insurance policies, you automatically have minimum essential coverage:
- Individual coverage you bought via a student healthcare plan, the Health Insurance Marketplace or privately from an insurance company
- Individual coverage under a catastrophic healthcare policy
- Some coverage obtained abroad for employees or non-employees, like missionaries
- Group health insurance through an employer-sponsored plan for current employees or retirees
- COBRA coverage
- Self-insured employee plans
- Coverage through a government-sponsored program (including the Children’s Health Insurance Program, Refugee Medical Assistance and the Peace Corps)
- Medicare Advantage plans, Medicare Part A coverage and certain plans offered by the Department of Veterans Affairs
- Most TRICARE and Medicaid plans
- Coverage via a Basic Health Program standard plan
- State high-risk insurance pools
- Insurance from the Nonappropriated Fund Health Benefit Program
Related Article: How to Pick a Health Insurance Plan
Insurance Plans Without Minimum Essential Coverage
Some health insurance plans only cover excepted benefits, meaning that they don’t have to meet all of the requirements set under the Health Insurance Portability and Accountability Act or the Affordable Care Act. These healthcare policies – such as workers’ compensation coverage, disability income insurance and stand-alone vision insurance or dental care – fail to meet the government’s minimum essential coverage standard.
Certain Medicaid plans offer a limited number of benefits. For example, there are Medicaid insurance policies that just provide discounted family planning services, plans that only cover individuals in emergency situations and coverage solely geared toward pregnant women. These kinds of Medicaid plans don’t have minimum essential coverage, and sometimes people with these policies can be eligible for a hardship exemption to the tax penalty.
AfterCorps coverage that’s available to Peace Corps alumni doesn’t qualify as minimum essential coverage. Neither does line of duty TRICARE coverage nor TRICARE plans provided on a space-available basis.
What to Do if You Don’t Have MEC
Not having minimum essential coverage can cost you. If you don’t have MEC, consider checking to see whether you qualify for an exemption. There are exemptions for people who’ve been incarcerated, Indian Tribe members and religious sect members, just to name a few.
If you’re not eligible for any exemptions and you aren’t exempt from filing a tax return, be prepared to pay the individual mandate. For tax year 2015, it’s $695 per adult and $347.50 per child or 2.5% of your household income if that’s higher than the per-person fee.
In terms of the fee, the percentage of household income is calculated using the portion of income that’s above the tax year filing threshold, which is $20,300 for married couples filing jointly and $10,1500 for singles. Luckily, the penalty won’t exceed $2,085 per person or the national average cost of a Bronze plan purchased through the Health Insurance Marketplace.
Related Article: The Affordable Care Act and Your Taxes
But what if you don’t have minimum essential coverage for the whole year? Will you have to pay the entire fee? Nope. If you don’t have MEC for less than three months in a row, you probably won’t have to worry about the shared responsibility payment at all. You might be eligible for the exemption known as the short coverage gap.
However, if you don’t have MEC for at least three consecutive months, you’re required to pay 1/12 of the yearly fee for every month you and anyone else in your household lacks qualified coverage. That means that if your insurance policy doesn’t meet the government’s standard for January through April, you’ll pay a third of the annual penalty.
Anyone with minimum essential coverage has enough coverage to avoid the healthcare fine. If you know you have minimum essential coverage, make sure the IRS knows that too. You’ll need to check the box on your tax return stating that you and everyone in your household had full coverage for all 12 months of the year.
If you or any of your dependents didn’t have healthcare temporarily and you’re claiming the short coverage gap exemption or another kind of exemption, you’ll need to include Form 8965 with your tax return.
Photo credit: ©iStock.com/monkeybusinessimages, ©iStock.com/gpointstudio, ©iStock.com/monkeybusinessimages