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Affordable Texas health insurance  Texas Health Reform Center Tax Penalty under ACA

Texas Health Insurance Mandate Penalty

For the first time Texas consumers are required by law to maintain qualifying health insurance.  Beginning January 1, 2014, any individual not covered by a qualified health insurance policy will be subject to a tax penalty as required by the Affordable Care Act (ACA). 

Adverse Selection Creates Negative Insurance Environment

The tax penalty is required in order to ensure that Texas consumers comply with the ACA and secure coverage instead of waiting until they are ill or injured and need coverage.  If individuals waited until they were in need of health insurance, this would create a situation defined as adverse selection.   Adverse selection occurs when only the individuals in need of insurance elect to purchase insurance.  Adverse selection creates an environment in which there are no healthy policyholders paying premiums to offset the claims expense being created by unhealthy policyholders.  Under adverse selection the claims expense is always larger than the premium dollars being paid to the carrier.

ACA regulations mandated that all coverage be written as guaranteed issue, which means that an application cannot be declined regardless of health history or medical condition.  Without a penalty, and a specified enrollment period, Texas consumers would wait until they were sick and submit an application knowing that the coverage could not be denied.  The tax penalty was the solution to motivate consumers to apply for coverage and reduce the number of uninsured.

Why Trigger A Penalty?

Starting in 2014, individuals who do not enroll in a qualified health insurance plan will pay a tax that is the greater of either $95 per person or 1% of household income.  Starting in 2015, uninsured individuals will pay a tax that is greater of either $325 per person or 2% of household income and increasing to $695 per person or 2.5% of household income in 2016.  After 2016, the tax will be adjusted for cost of living. 

This penalty is intended to motivate Texas consumers to purchase health insurance, which will feed healthy dollars into the system.  The problem with the tax to be levied in 2014 is glaringly obvious.  The penalty or tax amount is not severe enough to encourage a healthy Texas s consumer, especially a young consumer, to buy insurance.  This may be especially true with expected premiums to be between $3,000 and $4,000 per year.

Avoid the Tax with Qualifying Coverage

Texas consumers are not subject to the tax if they can demonstrate they are covered by a plan that has been deemed to be qualifying coverage.  Group coverage, in addition to Medicare, Medicaid, CHIPS or Tricare will suffice as qualifying coverage.  Plans must meet the essential benefits to be classified as qualifying coverage.  Benefits offered that are considered essential benefits include:

         Maternity care

         Mental health services

         Substance use services

         Preventative care

         Pediatric services (including dental and vision). 


Contact Stateside to Discuss ACA Updates
The Affordable Care Act open enrollment period begins October 1, 2013. Do you understand what that means for you and your family in terms of insurance coverage for the remainder of 2013 and into 2014? Call us anytime to learn more.


You can contact Stateside Insurance Services in whichever way is most convenient for you:

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Email: info@texasplans.com
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