The myth of the $95 penalty

I see a lot of speculation in the media about whether young, healthy people might simply choose to forego insurance and simply opt to pay the $95 penalty instead. For example, an article posted today  in The Daily Beast asserts, ” But it’s cheaper for young people to pay the one time legal fine of $95 ….”  In the Wall Street Journal, an article about health insurance for  “young entrepreneurs” reiterates, “For 2014, the dollar penalty is $95.”  In the Los Angeles Daily News, a writer quotes “expert” predictions that Obamacare will falter “If young adults instead chose to pay the $95 fine.

But the fine for not having insurance is more than $95 – a lot more in some cases. The $95 refers to a minimum,  per-person fine.  The actual tax penalty for not having insurance coverage in 2014 is the higher of $95 per person or 1% of  household income of household income over the filing threshhold, which is $10,000 for a single taxpayer in 2013. (See 26 USC 5000A)

So the only uninsured people who will be paying penalties as low as $95 will be those with incomes of under $19,500 — who by virtue of their income are eligible for substantial subsidies.  In other words, under ACA, that person with the $19,500 income would be able to buy a Silver policy in an exchange for about $975 a year, or a premium of $81 per month. If that person truly did not believe that health insurance was “needed,” he could opt for a lower cost Bronze policy.