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There are few contemporary issues which have garnered as much attention and created as much frustration as the Patient Protection and Affordable Care Act, a.k.a., Obamacare. In addition, given the recent website snafus, this frustration has risen substantially. Obamacare also ranks high on the political scale chiefly because it bears the name of our president. However, if it were to fail, it would likely leave a rather unpleasant legacy. Therefore, we can expect that President Obama will do everything possible to insure its success.

Obamacare is also a highly charged political issue. Moreover, there are individuals on both sides of the debate who seem incapable of engaging in an objective dialogue. Rather, when confronted with the facts, the typical response is often nothing beyond a few “talking points” or some irrelevant debate strategy designed to deflect the original issue. It’s been said that good debate makes good TV, but it also detracts from the true issue and only serves to confuse the public. Due to an abundance of misinformation, confusion abounds. Also, constant partisan bickering has caused Americans to hold Congress in record low esteem. But I digress.

In previous articles, we have discussed Obamacare’s provisions, taxes, and a few other aspects. However, we have yet to discuss the exemptions which certain individuals may be able to claim to avoid its punitive, non-compliance penalties. In this article, we’ll examine the penalties as well as the exemptions.

Obamacare Penalties

A law without consequences is like a Chihuahua without teeth. It may bite you, but it probably won’t do much damage. Obamacare most certainly contains teeth and for those who don’t comply, and fail to obtain an exemption, penalties will be imposed. The following table contains the tax penalties or what proponents prefer to call a “shared responsibility fee.”

Beginning in 2014, absent a qualified exemption, you will be required to obtain health insurance. If you fail to comply, you will be subject to a penalty of 1.0% of your annual income or $95.00, whichever is greater. In 2015, the penalty increases to the greater of 2.0% of annual income or $325 per person. The following year it becomes the greater of 2.5% of income or $695 per person. After 2016, it will be indexed to the cost of living. It should also be noted that the maximum penalty is capped at three times the per person penalty. For example, if you earn $28,500 in 2014, 1.0% of your income would equal $285. Therefore, if you earn more than this, your maximum penalty would remain the same. All penalties will be due and payable with your annual federal income tax return. Hence, the penalty for 2014 would be due by April 15, 2015 and the IRS will be the collection agency used.

Exemption From Non-Compliance Penalties

Certain individuals will be exempt from Obamacare. According to the website, healthcare.gov, you may qualify for an exemption if:

  1. You’re uninsured for less than 3 months of the year;
  2. The lowest-priced coverage available to you would cost more than 8% of your household income;
  3. You don’t have to file a tax return because your income is too low;
  4. You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider;
  5. You’re a member of a recognized health care sharing ministry;
  6. You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare;
  7. You’re incarcerated, and not awaiting the disposition of charges against you; and
  8. You’re not lawfully present in the U.S.

It should also be noted that if your income is less than 133% of the federal poverty level, you will be relieved of this penalty. At first blush, the exemptions seem to focus on the poor, those in prison, Native Americans, and illegal immigrants. There is, however, another list of qualified exemptions.

Hardship Exemptions

This is the list I suspect holds the greatest potential for loop-hole abuse. You may qualify for a hardship exemption if:

  1. You were homeless;
  2. You were evicted in the past 6 months or were facing eviction or foreclosure;
  3. You received a shut-off notice from a utility company;
  4. You recently experienced domestic violence;
  5. You recently experienced the death of a close family member;
  6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property;
  7. You filed for bankruptcy in the last 6 months;
  8. You had medical expenses you couldn’t pay in the last 24 months;
  9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member;
  10. You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you do not have the pay the penalty for the child;
  11. As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace; and
  12. You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.

Exemption Loopholes?

When laws are passed, clever avoidance strategies often follow. Let’s consider hardship exemption number three. A person could delay payment to their utility company, receive a shut-off notice, pay their bill before their service is disconnected, and use the shut-off notice to apply for a hardship exemption. I checked to see if this would negatively impact ones credit score. The answer depends on whether your utility company reports shut-off notices to the credit bureau. Then, I called a major utility company and was told they only report disconnect information to the credit bureau, but not shut-off notices. Therefore, as long as the customer pays their bill before the utility company disconnects their service, they could conceivably use the shut-off notice as a hardship exemption without impacting their credit score or having their service interrupted. However, if enough people did this, I could envision Congress passing a law requiring utility companies to report all shut-off notices to the credit bureau. More regulation often begets more regulation.

Let’s consider exemption number eight. You go to the doctor or hospital, incur a medical expense not covered by insurance, and fail to pay it. Of course, this would affect your credit score. But how would the federal government determine if you’re reason for nonpayment was due to  financial inability? Will they audit your cash flow for the previous two years? In short, there would have to be a massive expansion in federal government employment to properly monitor the tremendous number of rules and regulations contained in Obamacare. Remember, the population of America is over 316 million!

What To Expect

We haven’t even discussed the expansion of the Medicaid system which will certainly increase the demand for medical services. Demand will also rise as more people are insured under Obamacare. At the present time there is a shortage of primary care physicians which is expected to increase. A primary reason is that medical students graduate with hundreds of thousands of dollars in student-loan debt and most cannot afford to take the less lucrative general practitioner route. Instead, most choose a career as a specialist which is indeed more financially rewarding. The combination of higher demand and fewer family doctors will translate into longer wait times and higher costs for medical services. The evidence can be found in the Northeastern United States. Consider what happened in Massachusetts after 2006, when its mandated insurance requirement took effect. According to an annual survey from the Massachusetts Medical Society, since the mandate, the time it takes to secure an appointment with a doctor has risen substantially. This is somewhat remarkable considering the fact that Massachusetts has the second highest physician-to-population ratio of any state in America.

Summary

The road ahead seems wrought with potholes filled with uncertainty. Higher medical costs? Likely. Shortage of Doctors? Probable. Longer wait times for appointments? Almost a certainty. What would happen if many of today’s health insurance companies were to exit the business? The government would likely intervene and install a Single-Payer,  government run, health care system. At times, I wonder if anyone in Washington actually understands what’s occurring. Of course, there are also times when I fear they do. Trying to incorporate a highly-complex health care law when the economy is weak is like trying to sell a heavy coat to someone in the Sahara Desert. Of course, pragmatism has not always been a strong suit amongst policy makers.

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