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Few may pay for skipping health insurance, new regs show

People worried about having to pay a fine for not carrying health insurance coverage got a little more guidance this week with some new federal regulations. The bottom line: Hardly anyone will end up paying the tax when the health reform law takes full effect in 2014.

The Urban Institute has projected that only about 2 percent of Americans would likely have to pay what the government calls the “shared responsibility payment.” The new regulations from the Internal Revenue Service and the Health and Human Services Department explain all the ways people can get out of paying it.

“What we are talking about is a relatively small slice of the population,” says Linda Blumberg, senior fellow at the Urban Institute’s health policy center.

The Congressional Budget Office has said that 80 percent of the non-elderly population would have some sort of health insurance even without the health reform law.

The so-called individual mandate, one of the least popular provisions of the 2010 health reform law, is meant to make sure that people don’t wait until they are sick to buy health insurance—especially as the law makes health insurance available more easily to more people, including those who are already sick.

The idea is that people will have many more chances to get health insurance because of the exchanges, the marketplaces where private insurance plans will offer policies for people to buy if they are not covered by an employer or by government-sponsored insurance such as Medicare, Medicaid and Tricare.

And the federal government is subsidizing all but the wealthiest buyers. The Supreme Court ruled it constitutional and says the payment is actually a tax.

It’s a nominal tax at first -- $95 in 2014, $325 in 2015 and $695 or 2.5 percent of household income in 2016. The IRS will make sure people pay it. Starting next year, you’ll have to declare where you get your health insurance on your income tax form.

“If you don’t pay on your tax returns if you own an assessment, what they are going to do is take it out of possible future tax refunds,” Blumberg said in a telephone interview.

One way the law aimed to get more people covered by health insurance was by making Medicaid more widely available. But the Supreme Court ruled last summer that states, which administer Medicaid and pay for part of it, could opt out.

The regulations make it clear there are plenty of exemptions. For instance, people who live in a state that has decided against expanding Medicaid won’t have to pay the tax if they would have been eligible for Medicaid.

So, if people live in a state that isn’t expanding Medicaid, they might not be on the hook to buy health insurance for themselves, although the government recommends they do.

“That’s an important clarification,” Blumberg says.

Also, people get one three-month slide. You can go for as long as three months, one time, without health insurance before the payment kicks in. After that, the IRS rules say people will be assessed 1/12th of the annual payment for each month they or their legal dependents lack coverage.

“For each month during the taxable year, a nonexempt individual must have minimum essential coverage or pay the shared responsibility payment,” the regulation reads.

People are exempt if they are in jail or prison, if they make too little money to file an income tax return ($9,500 a year for an individual), if their health insurance premium would cost them more than 8 percent of annual income, members of Indian tribes, those whose religion forbids buying health insurance, illegal immigrants, Americans living abroad, and members of a health care sharing ministry.

The IRS has a public hearing scheduled for May 29 on the new regulations.

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