Does Short Term Health Insurance Make Economic Sense with the Obamacare Tax Penalty?
The Affordable Care Act uninsured tax applies to individuals who have gone without Obamacare coverage for more than three months within a calendar year. Term Health plans are designed to be for a defined period of time. Thus, a consumer who has a Term Health plan for a period of less than three consecutive months, and Obamacare coverage for the remainder of the year, may not be subject to the uninsured tax.
For those who are considering Term Health for longer than 90-days, the tax is prorated based on the number of months a consumer went without coverage compliant with the Affordable Care Act. Taxpayers will be charged a portion of the total penalty for the months that they are considered uninsured.
Whether paying a partial or full penalty, the combination of a Term Health premium and the uninsured tax can still be less expensive than even basic level (“Bronze Level”) Obamacare plans. In 2016, the penalty for going without Obamacare is the greater of $695 per an adult and $ 347.50 for a child (up to $2,085) or 2.5 percent of taxable household income (capped at the national average of an Obamacare bronze plan). Remember, this penalty is pro-rated according to the number of months one was not insured. Additionally, there are certain conditions under which people are exempted from the tax. These include hardship and income-related exemptions (see exemptions on Healthcare.gov).
One study of 2015 Short Term Health insurance premiums found that for a healthy thirty-year old male, a Term Health plan was 76% less expensive than the average Obamacare Bronze plan. See Study Shows Major Premium Savings
Each individual’s tax situation and health insurance needs are different. To calculate their specific tax penalty, consumers should consult a tax expert, or use a calculator such as the one available at: http://taxpolicycenter.org/taxfacts/acacalculator.cfm.