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Millions of Americans Will Avoid the Obamacare Tax in 2016

By Todd Campbell - Jan 23, 2016 at 7:20AM

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Enrollment in health insurance plans is climbing ahead of increasing penalties for being uninsured.

Image source: Department of Health and Human Services.

The most recent news out of the Department of Health and Human Services is that enrollment in Obamacare is ahead of last year, suggesting that the prospect of surging penalties associated with going without health insurance this year are forcing younger and healthier Americans to take the leap and get coverage.

Painful penalty
Last July, the IRS reported that 7.5 million Americans were stung by the Obamacare penalty for failing to have health insurance in 2014 or to qualify for an exemption.

The penalty fattened the IRS coffers by an average $200 per person, or by a combined $1.5 billion, because taxpayers who didn't get insured in 2014 had to pay the higher of 1% of income or $95 per adult and $47.50 per child up to a maximum of either the national average cost of a bronze level plan or $285 in 2015.

Since tax returns are only now starting to roll in, it will be months before the IRS reports data for 2015, but it's a good bet that the agency's haul from the Obamacare penalty will be bigger this time around. That's because the penalty for being uninsured in 2015 jumped to the higher of 2% of income or $325 per adult and $162.50 per child, up to a maximum of either the average national cost of a bronze-level plan or $975.

Avoiding the pinch
Earlier this month, Washington reported that 11.3 million Americans had signed up for health insurance through the Obamacare marketplaces through December 26.

The 11.3 million enrollment figure includes 8.2 million people who reenrolled in coverage and 3 million new consumers who signed up to avoid paying the Obamacare fine.

Separately, the Department of Health and Human Services announced that 8 in 10 people signing up for health insurance through the federally run healthcare.gov website qualified for subsidies that averaged almost $300 per month and represented 72% of an enrollee's monthly insurance premium.

The enrollment increase could be welcome news for struggling insurers. So far, the majority of people who have signed up on the exchanges have been older Americans who require more costly healthcare, and as a result, insurers are struggling to turn a profit on healthcare plans offered through the exchanges. That could change, though, if enrollment growth is being driven by young "invincible" Americans who aren't as expensive to insure.

Looking forward
Despite an uptick in membership this open enrollment season, Obamacare membership is still running far below original Washington estimates for 20 million people enrolled by 2016. Enrollment is better, however, than the 10 million projected by the White House last fall.

Regardless, since the penalty for going without health insurance this year increases to the higher of 2.5% of income or $695 per adult and $347.50 per child up to the the maximum of the national average cost of a bronze level plan or $2,085, it seems to me that enrollment remains stubbornly low. According to a survey conducted by Gallup/Healthways, 11.9% of Americans remain uninsured, and that means millions of people could get a very unwelcome surprise when they file taxes in 2017. If so, then maybe the real spike in enrollment may not come until after Americans file their tax returns next year.

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