Your Money: Health coverage vs. tax liability

Posted: December 19, 2013

Health care is a serious personal financial matter, and deciding to forgo insurance under the Affordable Care Act will cost you. But just how much?

Let's compare the cost of buying health insurance vs. the tax penalty for going uninsured.

According to the Congressional Budget Office and the Joint Committee on Taxation, an estimated six million Americans will opt to forgo health insurance and pay the penalty instead.

In 2014, the tax cost of going without health insurance will be $95 or 1 percent of the portion of modified adjusted gross income that exceeds the federal income-tax filing threshold of $10,150, according to Ed Kohlhepp, founder of Kohlhepp Investment Advisors in Doylestown.

A person earning $50,000 a year is looking at a $400 tax penalty; that rises to $900 for a person earning $100,000, he estimates. Remember: These numbers are for the first year only. Tax penalties increase in subsequent years. (For more on the penalties, read an article at TaxACT.com: http://goo.gl/hcFs5m.)

Let's say you're 30 and buy health care for $2,800 in annual premiums, on average, for a typical "silver" plan on an insurance exchange - one of the cheapest options.

By Kohlhepp's calculation, "you're looking at $2,800 or more in some states to the insurance company, vs. $95, or $400, or $900 to Uncle Sam. What's the catch?"

The catch: You're uninsured but end up needing health-care coverage.

For instance, among the top reasons younger people visit the hospital is a back injury - a herniated disc or cervical spine issue. The average cost for treatment: $4,890, according to a recent New York Times article ( http://goo.gl/WC6JAz).

Add in $400 in tax penalties, and the total cost if you're uninsured is $5,290, Kohlhepp estimates.

"If this same person had bought a silver insurance plan, the overall cost," he says, "would have been the $2,800 premium plus $821 in out-of-pocket costs, or $3,621."

There's no way to know whether you will suffer illness, accident, or health problems. But if you do, having medical coverage pays for itself in two ways, Kohlhepp believes: First, treatment won't bankrupt you because there's a cap on out-of-pocket costs. And second, you'll have the insurance company negotiating costs.

That doesn't mean everybody should buy insurance under Obamacare. But at least you've got some of the simple math of going bare.


erinarvedlund@yahoo.com

646-797-0759

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