Home > Health Insurance > Obamacare: Should I Take the Penalty Instead of Purchasing Health Insurance?

Obamacare: Should I Take the Penalty Instead of Purchasing Health Insurance?

Health Care PenaltyA big part of the Affordable Care Act, commonly know as Obamacare, starts on January 1, 2014, and it requires everyone to have health insurance unless you meet one of a few exceptions. If you choose not to have health insurance, you will be subject to a tax penalty. If you don’t already have health insurance, could it make financial sense to take the penalty instead of purchasing a policy?

 

Saving Money By Not Buying Insurance

Let’s look at it from a purely financial standpoint. I will use a friend of mine as an example. We’ll call her Irene. Irene doesn’t have health insurance and has a decent job at a small business that doesn’t offer a group policy. Because her employer only has a few employees, they are not required to offer insurance under the Affordable Care Act. Her husband and step-daughter have coverage through his job.

Irene has no coverage for herself and her daughter, and they don’t qualify for state aid. For the two of them, it will be around $250 per month.She is a smoker and has a higher rate due to that status. The penalty for not getting insurance is $95 per adult or 1% of your income, whichever is greater. For uninsured children, the penalty is $47.50. In her case, the penalty would be around $300 per year. Financially, it would seem that $300 a year in penalties would be a much better plan than paying $3000 per year for insurance that still has deductibles and copays.

Because I like to play devil’s advocate, I asked Irene what would happen if she gets into a catastrophic accident on the way home. She says she has a savings account for medical expenses. “What if you have to be in the ICU or have surgery?” She said that she would qualify for CICP, which is the Colorado Indigent Care Program. It is a state program that covers emergency treatment and hospitalizations required to save your life if you are uninsured. I believe it covers more in some areas, but where we live, the hospital and sliding scale clinic are the only ones who accept it. It does not cover medicines, therapy, or surgeries that are non- emergent. I am also unsure what allows you to qualify, but she seemed pretty sure she would.  It sounds like she has it all planned out and is, in fact, saving money.

While that might seem well and good, let me also share a couple of stories from the last few months. Small towns are great for that!

Cost of a Brain Injury?

There was a lady we’ll call Marla who attended my morning exercise class for a while. I won’t say we were friends, but at 5:30 AM, you tend to bond a little bit. She was 51, in great shape, and looked years younger. Marla was several times divorced, had a new Harley Davidson, and liked to party. While I thought she maybe hung out at the bar a little much, who am I to judge? I’m a boring optometrist. Carpe Diem, right?

Well, Marla decided to let her new boyfriend, who didn’t have a motorcycle endorsement on his license, drive her around on the Harley. They hit a deer at 45 mph, without helmets. He walked away with scratches. Marla ended up with a severe head injury and a broken pelvis. She was flown out on a helicopter because our local hospital didn’t have the specialists she needed.

After surgeries to put her back together, she miraculously woke up, but obviously needs months of therapy for learning to walk and recover from her brain injury. Did I mention that Marla doesn’t have health insurance?

Guess what happens if you don’t have health insurance and need long term care? You get discharged and sent home. I have no idea if Marla will make a full recovery, but if she doesn’t, I will always wonder if it would have made a difference if she could have stayed in rehab.

Can You Afford Cancer Treatment?

My last story is one from a young patient we’ll call Hope. I have heard just about everything over the  years, so it is rare that I  get choked up during an exam, but I almost lost it on this one. Hope was 27 and came in for a regular eye exam, but I noticed she had marked cancer on her history form. Sometimes people get confused and mark family history as their own, so I asked about it.

Hope was first diagnosed with metastatic melanoma at age 15. It appeared as what she and her parents thought was a cyst on her shoulder. It was not a cyst. She beat it that time, but it came back at age 23 and spread to her brain and lungs. She tried all the traditional therapies and was losing. She got accepted into a hospital in Houston for a new program of therapy,which her insurance approved. Everyone else in the group died except Hope. She has been cancer free for four years. I wonder what would have happened to Hope if she hadn’t had insurance.

The Penalty Could Cost More Than You Think

No one thinks they are going to get cancer at age 15. No one believes they are going to get into an accident on a Sunday joy ride. Bad things happen to good people. When your time is up, it’s up, but what if by some miracle, you do survive something that should have killed you? Do you want the absolute best care, or do you want the minimally necessary standard treatment approved by a state indigent program?

Maybe you can save money by choosing not to get health insurance. It might seem like a good idea to take the penalty instead, but please remember Marla and Hope and the thousands of others like them who leave home happy and care free and come home fighting for their lives.

Health care in the US is a mess. We have some of the best and most advanced therapies and providers, but we don’t always have a way to access them. The system is broken, and it won’t be fixed tomorrow. I do think all people need at least major medical health insurance so that if the need arises, you can concentrate on getting well rather than how to pay the doctor bill. You really can’t afford not to be covered.

Obviously you get my take on the issue, but what about you? Will you purchase health insurance or take the penalty?

Image: Freedigitalphotos.net/krisnan

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

39 comments

  1. Thanks for sharing some very profound stories, Kim. Although the rebel in me is tempted to say “Screw you – you will NOT force me into having insurance” and take the penalty, the mom in me will always make sure we have some type of coverage. It’s just not worth the risk, at least to me.
    Laurie @thefrugalfarmer recently posted..The Most Dangerous Roadblock to Your Debt FreedomMy Profile

  2. I definitely think that everyone should have insurance, mainly because of the catastrophic situations that could arise. With the new regulations insurance plans must cover pretty much everything, which is both good news and bad news. Good news because I don’t think people will see them put up too much of a fight over claims unless they think it is fraud-related, bad news because insurance will be more expensive. In the end, though, I think everyone should bite the bullet and get insurance.
    DC @ Young Adult Money recently posted..How Much Financial Information Should You Share?My Profile

  3. I am definitely pro health insurance. I don’t have health insurance now and I really want it for me and my girls. My job nor my exhusbands job offers health insurance to employees so I would have to go get it on my own. I had quotes done for me and the cheapest for me and the girls would be $300 a month with a $5,000 deductible. I just flat out cannot afford it right now. I barely make enough money to pay for the basics. Right now the penalty is my only option.
    Alexa recently posted..Quick Tricks: Creative Ways to Budget this SummerMy Profile

    • I hope your online income takes off and that won’t be a worry very soon.

    • Once the the Affordable Health care act is in full swing you will be able to qualify for a reduced rate subsidized by the government. If you truly can’t afford insurance at the market rate, chances are you won’t have to pay it under this program.

    • You may be in a great place come 2014. If no group coverage is available to you and your income is low, government subsidies could really help you buy insurance on the Exchange.
      FI Pilgrim recently posted..The True Impact Of Lifestyle ChoicesMy Profile

  4. A friend of ours has gone without health insurance for many years now (self employed masseuse), and when the plans all come out he wants help going over them since he’s inclined to turn them all down and pay the penalty. But when I pointed out that because his “on the books” income is quite low, he’s likely to have pretty big subsidies, so that would change the calculus on the matter at least somewhat.
    Mrs. Pop @ Planting Our Pennies recently posted..He Said She Said: Habits Of Wealthy PeopleMy Profile

    • Usually the people who complain loudly about how they can’t afford something really could, like my friend who could certainly afford a premium payment if she gave up cigarettes. I also think there are probably lost of people who qualify or will qualify for state assisted programs and don’t know about them. I’m not sure how to educate people. It seems when you start talking insurance, their eyes glaze over and it seems like you are speaking Chinese.

  5. We have private health insurance because the government taxes you a certain percentage of your total income if you don’t have it. It is a little annoying to be forced into private health cover, but the flip side is that I like the security of knowing many health issues are covered for us.
    Glen @ Monster Piggy Bank recently posted..How Much Does A Dog CostMy Profile

    • Once when were were going over our home owner’s insurance with an agent, I thought the replacement cost was a bit high. The agent said she gets that alot, but if the house burned down, we’d wish we had in insured for $1 million. I think that’s the same for health insurance. If you need it, you forget how much the premiums were.

  6. We will continue to pay for health insurance. Health insurance is there to protect us from the catastrophic losses that could ruin our financial future. As you showed, those can come at any time.
    Brian @ Luke1428 recently posted..I’m Saving Thousands in 60 Seconds or LessMy Profile

    • I would cut my electricity before I cut health insurance. It’s that important to me, even if it will only kick in for catastrophies and I hope I never have to use it.

  7. As someone who has not had health insurance in five years- I’m thrilled. It’s a horrible thing to have to say, “I’m in serious pain but it’s not life threatening, so I can’t afford to go to the doctor.”
    Stefanie @ The Broke and Beautiful Life recently posted..Three Finance Fees You Never Need to Pay.My Profile

  8. Absolutely everyone should have health insurance, and it’s an on-going shame that it’s unaffordable for so many. I’m semi-retired and have had an individual plan for years (I do without dental and vision coverage). My premiums have gone up 85% in the last two years, and will increase even more in 2014. I will not qualify (barely) for a subsidy on the health exchange, but using my state’s (Wash.) premium calculator, my family’s premiums will be alsmost 3X what they are now!! That will be just over 22% of our income. That’s just an estimate until the exchanges publish the actual plans/costs later this summer, but I am waiting with some anxiety. I’m not sure what I will do. And I have been working with health insurance companies for 30 years and thought I knew it all. How will the average person cope?
    Frugal Nurse recently posted..First aid for nosebleedsMy Profile

  9. $250 seems really low for a woman who smokes and a daughter. It’s probably a lot more than that. I pay just about that amount for just me and I’m healthy with no history of medical issues That being said EVERYONE should do their damnedest to get health insurance. Unless this woman is hoarding millions for “emergencies” then it could send her into bankruptcy if any of the above situations (or many others) happen. Heck I have have my own insurance but the deductible is so high and if some kind of long term health care happened I’m sure they would raise my premium so high I could barely afford. it. It will be interesting to see how all of this shakes out over the coming years.
    Budget and the Beach recently posted..Is the Standard of Beauty Set by the Rich?My Profile

    • My daughter and I pay $190 per month, but we have a $10K deductible, but $10K isn’t going to bankrupt me like having a major hospital stay might without insurance. I don’t see it getting any better any time soon.

  10. Those are some seriously scary stories. I can’t pretend to understand the US system, but from an outsider’s view, it looks like a total clusterf-. I met a couple of Americans recently who didn’t have health insurance and seemed pretty blase about it, surprisingly – the gist I got from them (accurate? I don’t know) was that you would not be denied care if you needed it, even if you were uninsured – and that some of their friends would sometimes say they were uninsured, even if they had insurance, because it would save them money. *head spins*
    eemusings recently posted..Communication FTW! A week of English volunteering in the Black ForestMy Profile

    • Hospitals by law cannot deny you care even if you don’t have insurance. That does not mean they won’t bill you–full price, too, not the negotiated discounts insurance companies get. Financial social workers might help you get on Medicaid or some other assistance program, otherwise–well, that’s why America has the highest personal bankruptcy rate in the world!
      Frugal Nurse recently posted..First aid for nosebleedsMy Profile

      • Right, they have to save your life, but if you need physical therapy or a bed a rehab facility, you’re out of luck. I’m sure the lady in my example will eventually get on disability and/or Medicaid, but I don’t think they cover any sort of therapy she needs. If they do, it’s hard to find providers who accept it. We see that with eye conditions all the time. If you have Medicaid and need a corneal transplant, it isn’t going to happen in Colorado.

    • Hospitals cannot refuse care to save your life, but they can charge you the entire bill if you don’t have insurance. They also won’t let you have non-emergency surgery if you can’t pay. I’ve seen people not be able to get cataract surgery without paying up front. At our local hospital, you get a 30% discount for paying all at once with cash or a check if you don’t have insurance, so that might be why people say they don’t. I have actually elected not to have my insurance billed to take the discount.

  11. The issue of health insurance is determined by age! If you are young (under thirty), you probably do not see the need for insurance. As you get older, you start to see the need. I think it also depends on other circumstances such as gender and if you plan to have children. When I started working, medical insurance was just another benefit. Now you contribute to the cost and it is much more expensive. Medical insurance is intended to cover you in a disaster.
    krantcents recently posted..Some Things Get Better with Age!My Profile

    • I don’t understand why people view getting health insurance as any different than having to have auto insurance to drive a car or homeowner’s insurance to have a mortgage.

  12. I can not agree with the sentiment to get health insurance more! I tore my ACL when I was 20 and through my mom’s amazing Ford Motor Company HMO, after going through all the rigamaroll steps, the surgery was FREE. (this was 8 years ago, so I’m sure rates have gone up since). Another friend of mine tore his ACL and needed replacement immediately before his new job insurance started. He was hit with a $50,000 bill that they were able to reduce to no lower than $30,000. If you have disaster insurance, even $10,000 is doable compared to $30,000!
    Tara recently posted..My Six Seasons and a MovieMy Profile

  13. Great stories and I am for health insurance. I rather have peace of mind than be stubborn and bankrupt, due to a severe accident.
    RichUncle EL recently posted..3 Ways to Construct a Company BudgetMy Profile

  14. I am fully on the side of getting insurance to protect you from exactly the kinds of things you talk about here. You don’t buy insurance to save money in the short-term. That’s not what it’s for. It’s there to save you from catastrophe. I definitely understand that the immediate cost can be difficult, and maybe unobtainable in some circumstances, but if you have a choice (and most do) I really think it’s incredibly short-sighted to go without it.
    Matt Becker recently posted..How to Negotiate a Lower BillMy Profile

  15. Your friend Irene may have qualified for premium and cost sharing subsidies depending upon her family income. They are available for families with household incomes below 400% of the federal poverty level.

    A family of three would qualify for subsidies if income is below $76,000.
    Kevin H @ Growing Family Benefits recently posted..Why do You Need Maternity Insurance?My Profile

  16. Um, why isn’t Irene on her husband’s insurance? Same with her daughter? The thing that upsets me about the new system is how people on Medicare are already seeing cuts in their benefits. I have a friend with epilepsy who can no longer afford their medication because of this. On the flipside, I have a pre existing condition and insurers will no longer be able to turn me down because of it. Still have to figure out how it will effect my premium, though.
    femmefrugality recently posted..Help us plan our wedding: iPod PlaylistMy Profile

    • It is cheaper for Irene to get her own policy than add to her husband’s, although she still supposedly isn’t getting anything because she’s taking the penalty.

      Like it or not, I believe one good thing about health care reform is that anyone can get insurance. I’ve known people who had skin cancer at an early age and then can never get covered. Forget it if you’re diabetic. I’m very glad pre-existings can’t be denied. The question now is whether they can afford premiums.

  17. I only clear $211 a week. With my bills I cannot afford the so called AFFORDABLE insurance which has been estimated at over $8000 a year . How can THAT be affordable when it is more than half my yearly salary ? Living in NC we have among the highest gas taxes in the US and now with a rate increase granted to Duke Energy how can I pay bills and purchase insurance ?

    • Carolyn, I have no idea what your household income is or how many people live in your home, but if that is your entire income, you should have no problem qualifying for Medicaid or whatever NC has as it’s state health program for low income. Again, I’m not familiar with NC, but Colorado’s estimated cost for a mid level plan with the new healthcare exchange is about $340 per month, which is offset with subsidies for anyone making less than about $70,000 per year with a family of four. It might be worth speaking with an insurance agent or community organization about your options. There have been several non-profits in our area who have been hosting meetings to explain how the new system is going to work. Best of luck and thanks for commenting.

  18. I have a daughter who is 50 but still lives at home. She is in danger of losing her job and her health insurance. She may not get insurance, thinking that a fine may be cheaper. BUT, I just read that the fine can be $95 or 1% of the “household income”. In doing research, I see that “household” income is the income, in our case might not only be income that daughter receives, but may include my wife’s and my social security. Can that possibly be true?

    • I am not an expert, but I believe your household income would be the income reported on your tax return. If she files her return individually, that would be her level of income. The fine might indeed be cheaper, but if she has a major health problem, does she have adequate savings to cover that. Would she qualify for a subsidy that would offset premiums?

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