How Does Obamacare Know If You Have Insurance?

The Affordable Care Act, aka Obamacare, heralds in new laws that make it mandatory for most Americans to obtain some form of qualifying health insurance coverage. If you can’t afford insurance and do not qualify for tax credits, then you may seek an exemption from having such coverage. Those who cannot produce proof of either will face penalties in the form of fees that are due at the time federal tax returns are filed.

In order to comply with the current statute, one must buy a healthcare plan from a private insurer, purchase a plan through the Marketplace, enroll in a Government program such as Medicare, Medicaid, or through the Department of Veterans Affairs, or have coverage from an employer. The goal is to get everyone insured at prices that are affordable and to keep anyone from being dropped or denied coverage due to any preexisting health conditions. If you have an exemption, then none of this applies to you and you are free from having to pay the penalty.

For those who are uninsured and may face a fee, you may be wondering how the federal government knows whether or not you have coverage and how they determine what your penalty will be for non-compliance with the law. Much in the same way your earnings are reported to the government each year, so too is your health insurance status.

Healthcare Reporting

The coverage that you have each year is now included with your tax return when you file with the IRS. You are required to report if you (and your family if applicable) had some form of coverage during the year or if you had an exemption from the mandate.

However, you’re not the only one reporting your health insurance coverage. All insurance providers including insurers, employers that sponsor health coverage for their employees, and government agencies, are required to notify the government about all of the members who are covered under their plans. These entities will also send their insured the proper documentation as it relates to their coverage plans. Both of these reports should correspond with one another when you file your taxes.

Paying Penalties

If you or your family did not have health insurance coverage at any time during the previous year and were not eligible for the exemption, then you will be assessed a penalty payable at the time you file your tax return. At the time the law when into effect, the penalty was relatively low.

Since then, the numbers have increased in accordance with an adjustment in the cost of living. For 2016, the fee due is the greater of either $695 per person and $2,085 per family of three or more, or 2.5% of your gross income. The penalties will continue to rise as each year progresses and the cost of living increases.

Those who are responsible for paying the penalty will have the amount deducted from their refund check. If you are not due a refund and you owe money on your taxes, the penalty will be deducted from refunds you may be due in future years.