A reader is starting a new job and won't have health insurance for three months. Will that result in an Obamacare penalty?
The Affordable Care Act, also known as Obamacare, was the answer for many Americans, but left others with questions. For example, a reader asked this question:
If a person leaves their current job where they had company-based insurance to take another job where that insurance won’t start for 90 days, will that person need to get insurance for that 90 days, or will it be OK not to have coverage for that period? Would they be in danger of getting a fine? — Andrea
Before we get to Andrea’s answer, here’s one of the many videos I did as the deadlines for provisions in the Affordable Care Act approached. It’s about what will happen if you don’t have insurance.
Now, on to Andrea’s question.
The short answer, Andrea, is: No, you won’t face a fine for not having insurance for 90 days.
According to Donna M. Ballman, employment lawyer and author of “Stand Up for Yourself Without Getting Fired“:
The Affordable Care Act website says that “If you’re uninsured for just part of the year, one-twelfth of the yearly penalty applies to each month you’re uninsured. If you’re uninsured for less than three months, you don’t have to make a payment.”
The IRS backs her up. From its website:
For any month in 2014 that you or any of your dependents don’t maintain coverage and don’t qualify for an exemption, you will need to make an individual shared responsibility payment with your 2014 tax return filed in 2015.
However, if you went without coverage for less than three consecutive months during the year, you may qualify for the short coverage gap exemption and will not have to make a payment for those months.
There are other exemptions affecting the coverage requirement, including low income and belonging to a group explicitly exempt (you can read more about the specifics here), but generally you’re required to either have health insurance or make a “shared responsibility payment” (pay a fine) when you file your 2014 federal income tax return next April.
As Ballman says above, that fine will be one-twelfth of the yearly penalty for each month you’re uninsured. That penalty is the greater of 1 percent of your yearly household income (see this site for a more detailed explanation) or $95. There are also penalties applying to uninsured children.
Forget the fine: Do you really want to be uninsured?
About a year ago I wrote an article called “Americans Don’t Want Health Insurance? Since When?” It was in response to the many commenters on this site who were livid about being forced to buy insurance by the Affordable Care Act. What I said there applies here:
When I graduated from college, there were a few months prior to starting my first “real” job when I didn’t have health insurance. Or I wouldn’t have, at least, if my parents hadn’t insisted on it.
Even though I was a healthy 21-year-old, my parents wouldn’t consider allowing me to exist without health insurance, even for one day. Why? Simple.
As my parents, they would have felt obligated to step up financially in the event of a major health care catastrophe. They worked exceedingly hard their entire lives to accumulate their nest egg. There was no way they were going to allow me to put that at risk because I was too stupid or cheap to shell out a couple of hundred bucks for insurance.
You can probably see where I’m going here. Even if you’re able to skate for three months without paying a penalty for being uninsured, you shouldn’t. Because if something happens to you during that 90-day period, you’ll be on the hook for the entire cost, which could mean the loss of everything you’ve ever worked for.
… if you don’t have coverage and you or a family member is hospitalized or incurs medical bills, being uninsured is about the quickest way I know to bankruptcy. Uninsured medical bills can be financially devastating. I highly recommend electing either Affordable Care Act or COBRA coverage to fill the gap. It just isn’t worth the risk for most people.
Many might advise Ballman and me to butt out, arguing that while “going naked” for three months may entail risk, it’s Andrea’s risk to take. It’s the same argument I made to my parents as an unemployed recent grad in 1977. As you read above, they argued it wasn’t just my risk, because they’d be morally required to step up if I couldn’t.
The same logic holds true for Andrea today. If she can pay for uninsured medical bills, fine. But if she can’t, her fellow citizens ultimately will, because unpaid medical bills are reflected in the cost of medical care and insurance for those of us who do pay.
In short, it’s not solely Andrea’s money at risk.
This is one of the major benefits of the Affordable Care Act
If you’re in a situation like Andrea’s, where you’ve lost employer-sponsored health insurance, you can go to the online health insurance exchange for your state and buy it outside the normal enrollment period.
And here’s the beauty of the Affordable Care Act. In days past, the only option many people had, especially those with pre-existing conditions, was to continue their prior employer’s coverage under COBRA, which is often a terrifically expensive option.
Thanks to the ACA, however, Andrea has a new and, most likely, vastly more affordable option. She doesn’t have to buy the best plan in the world. All she needs is a plan that will keep her out of bankruptcy should the worst occur.
So Andrea, while you may be able to avoid a penalty, please protect yourself and the rest of us by getting some coverage until your new employer-sponsored policy kicks in. We all hope you won’t need it and it ends up being an unnecessary expense.
But then, isn’t that what we always hope when we pay for any kind of insurance?
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’ve earned a CPA (now inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you’ve got time to kill, you can learn more about me here.