One of the most hated aspects of the Patient Protection and Affordable Care Act, better known as Obamacare, has been the provision that imposes penalties on those who choose not to get qualifying health care coverage. For years after its provisions became law no one saw Obamacare penalties in action, but when Americans filed their tax returns this past April millions got their first glimpse of how Obamacare penalties in 2014 would work. Unfortunately, the situation is only going to get worse for those who owe penalties -- and although this year's penalties will be more severe than last year's, the real pain will come in 2016. Let's look more closely at the penalties you can expect to see next year.
Why you might owe penalties
Obamacare forces Americans to do one of three things. The law clearly wants Americans to obtain the minimum essential health insurance coverage to cover health care costs. Alternatively, if you qualify for certain exemptions, you don't have to get coverage. But if you neither qualify for an exemption nor get qualifying insurance, you'll have to pay an Obamacare penalty.
For 2014, the penalties were relatively small. The minimum amount was $95 per adult and $47.50 per child, which, for large families, is capped at a total of $285. If your income is higher, though, then your penalty could be as much as 1% of whatever income you earn over the tax filing threshold. In general, individuals making more than $20,000 have had to pay a higher penalty than the base $95 amount, and families making above certain higher limits have had to pay more than the $285 cap.
This year, though, the penalty amounts are ratcheting up significantly. The corresponding per-person amounts soar in 2015 to $325 per adult and $162.50 per child, up to a family maximum of $975. But 2% of your household income above your tax filing threshold is higher, then that's generally what you'll owe.
2016: The worst year yet for Obamacare penalties
The penalties reach their worst next year, with huge increases coming once again. The per-person charge in 2016 jumps to $695 per adult and $347.50 per child, topping out at a whopping $2,085 per family. The income-based penalty rises to 2.5%.
After that, increases will be more modest. The amount of the Obamacare penalty in 2017 and thereafter will be indexed to the Consumer Price Index, with maximums gradually rising over time.
How you can avoid Obamacare penalties
As you can see, the penalty amounts for not having adequate health insurance coverage get quite draconian in a hurry. However, there are several provisions within Obamacare that could help you avoid having to pay the penalty even if you don't have qualifying coverage.
One of the most common exemptions applies to those who have a short-term gap in coverage, whether due to a change in jobs or other circumstances. If you lose coverage for no more than three months, you won't owe a penalty for those months.
There are also several financially based factors to consider. Those who don't earn enough money to have to file a tax return won't owe the penalty. Moreover, if the cost of getting qualifying coverage is greater than 8% of the overall income for your household, then Obamacare doesn't charge the penalty. Those who face certain types of hardships, including homelessness, foreclosure, eviction, bankruptcy, or the death of a member of your immediate family can also qualify for exemptions from having to pay penalties.
With estimates that as many as 6 million people paid the Obamacare penalty for 2014, it's clear that many Americans don't realize just how much the amount they'll owe is scheduled to increase this year and next. One look at the Obamacare penalties for 2016 should convince everyone that the federal government is serious about trying to get people covered, and while many people just paid the penalty for last year, most won't be able to afford the costs of skipping coverage by the time 2016 rolls around.