Filing tax paperwork at the beginning of the year is as routine and familiar as getting your car’s oil changed.
But for millions of taxpayers, there will be one extremely unfamiliar aspect of filing their taxes — because it’s brand new for everyone. For the first time ever, everyone will be required to tell the IRS whether or not they had health insurance in the previous year. Millions will even have to pay the tax penalty for failing to sign up. It will remind all taxpayers about the consequences of the ACA and make the uninsured more inspired than ever to get coverage now.
The Big Cost Of Living Without Health Insurance
According to the Treasury Department, up to six million taxpayers will have to pay a penalty for failing to acquire health insurance in 2014. The IRS form 1040 will feature the brand new Line 61, asking filers if they had health insurance during the year. Most will simply check the box to indicate that they are insured. While some people can qualify for an exemption, most will have to pay up.
However, the remaining millions will have to pay either 1% of their household income or $95 per person, whichever amount is greater. If a household with the national average median income is asked to pay the penalty, they may be required to fork over an additional $500 with their tax bill. According to the IRS, the penalty is capped at the national average premium for a bronze plan. That means individuals will pay $2,448 at most, but a family of five or more may be required to pay as much as $12,240.
Kevin Counihan, the CEO of healthcare.gov, stressed that the fee is designed to simply encourage Americans to sign up for healthcare. “We’re not here to have a goal to get a certain fee income or to make this difficult for folks,” he said. “We want to get people insured and have the peace of mind of health insurance.”
There are many ways that someone can avoid the penalty even if they aren’t insured. For example, taxpayers are excused if there was a death in the family, they recently were a victim of domestic violence, or if their 2013 coverage was canceled. If a taxpayer wants to qualify for an exemption, they will have to file Form 8965 with their tax return.
Curious to see what your ACA penalty would be if you didn’t have health insurance? The nonpartisan Tax Policy Center offers a calculator to estimate your total tax penalty. Try it out yourself or send it to leads as part of the nurturing process.
If these penalties for the uninsured sting now, they’re going to smart even more once people file their taxes for 2015. Next year’s tax penalty will increase to $325 per person or 2% of their yearly household income, whichever is greater. And it will increase even more for the 2016 tax season. The gradually increasing penalty is designed to help taxpayers get used to the idea of paying to not have coverage.
While these are strange times for taxpayers, it’s downright historical for brokers.
How The Controversial Individual Mandate Can Help Your Business
This is crunch time for health insurance agents. The end of this open enrollment period is a scant 10 days away. You’re no doubt striving to close as many new clients as you can before the health insurance market tightens up. The fact that we’re in the middle of tax season and that so many people are coming face to face with the ACA tax penalty can be a boon for you.
You’re in the business of solving one major problem: lack of quality health insurance. In the final run up to the close the open enrollment period, consider yourself solving two major problems: lack of health insurance and the ACA penalty. You can use the threat of a larger tax bill to help nudge stubborn leads toward buying coverage. If someone makes $50,000, they may be required to pay up to $1000 for the penalty if they fail to acquire health insurance this year. Mentioning this fact can put the price of healthcare premiums in perspective. Do your leads want to pay an extra $1000 for nothing, or would they like to get a Bronze plan that at least would get them covered?
That sounds good in theory. But does the mandate actually inspire people to get coverage they might have otherwise turned down? Yes.
Back in May of last year, Enroll America conducted a survey of newly enrolled individuals. They found that four in ten of new enrollees either wouldn’t have received coverage, or don’t know if they would have received coverage, were it not for the mandate. If that continues to hold true, then almost half leads you speak to are possibly motivated to get coverage because of the mandate.
In offering motivation to buy the coverage you want, you may want to take a “carrot and the stick” approach. The carrot, obviously, is the comfort and security of having a quality policy. The stick is the looming penalty. It’s hard to know which tactic will be most effective for every individual lead. But if you use them in combination, you cover all possible motivational basis.
Interestingly, the same survey reveals that less than half of those who did not enroll do not understand basic health insurance terms like “premium” and “open enrollment.” This highlights how essential your educational and advisory roles are when guiding people to good coverage.
We may be seeing a health insurance perfect storm. The kind that agents may never see again in their lifetime. The combination of a pressing deadline, the first ever ACA penalty becoming reality, and the looming threat of an even bigger penalty around the corner is going to motivate even the most lollygagging of insurance prospects. The conditions are perfect to help start 2015 with a big boost to your commissions.
How much you focus on closing leads for the next week and a half will have a big impact on the numbers on your tax return next year.