Health Insurance Tax Penalty to Hit 6 Million Americans

By Robert Longley, About.com GuideSeptember 21, 2012

Nearly 6 million mainly middle-class Americans -- 2 million more than first estimated - will be required to pay an average tax penalty of $1,200 in 2016 because they failed to buy health insurance as required by the health care reform law, according to an updated report from the nonpartisan Congressional Budget Office (CBO).

The latest numbers nearly double the CBO's original estimate of 4 million penalty payers issued in 2010, shortly after passage of the Affordable Care Act, part of which requires all Americans to be covered by health insurance by 2016 or pay a penalty on their income tax.

The CBO attributes the drastic increase mainly to the effects of legislation passed since 2010 and the fact that the double whammy of higher unemployment and lower household income has left more Americans financially unable to buy health insurance.

In addition, notes the CBO, the recent Supreme Court decision upholding the health care reform law will also increase the number of people expected to pay the penalty.

"As a result of that decision," states the CBO, "some states will not expand their Medicaid programs at all or will not expand coverage to the full extent authorized by the Affordable Care Act. Such state decisions are projected to increase the number of uninsured, a small percentage of whom will be subject to the penalty tax."

The CBO estimates that almost 80% of the 6 million people required to pay the penalty in 2016 will have incomes of $55,850 or less for individuals and $115,250 or less for families of four.

While about 30 million nonelderly people will remain uninsured in 2016, the majority will not be subject to the penalty tax, according to the CBO. Unauthorized immigrants, members of Indian tribes and persons with incomes low enough that they are not required to file income tax returns are all exempt from the requirement to buy health insurance. In addition, persons whose insurance premiums would exceed a legally specified percentage of their income will not be subject to the penalty. Others will be granted exemptions because of hardships or their religious beliefs.

The CBO estimates the government will take in almost $7 billion in payments of the health insurance tax penalty in 2016, and about $8 billion per year over the 2017 - 2022 period.

Under the Affordable Care Act, money raised from the tax penalty must be used mainly to fund government subsidies to help middle- and low-income persons pay for health insurance.

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