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Myth Buster: No jail time for uninsured

You'll find numerous blogs out there threatening jail time for the uninsured, but don't believe them. This is just another scare tactic to prevent health insurance reform.

While it's true there are penalties for those who choose not to get insurance, that penalty is 2.5% of one's income and the penalties will be collected by the IRS. Jail time is not likely. In fact criminal prosecutions by the IRS are rare. Of 156 million individual tax returns filed in 2008, only 100 resulted in criminal prosecutions for those who willfully defrauded the system. The penalty will only impact those who are wealthy enough to pay for insurance and choose not to pay. The intent is that this penalty will be used to pay for the medical needs of those who choose not to get insurance.

The fact of the matter is that right now the uninsured are costing every American $1,017 in insurance premiums to cover the medical expenses of the uninsured. That's $42.7 billion this year. Under the House Affordable Health Care for America Act, Americans will be responsible for purchasing health insurance coverage and most employers will be responsible for offering coverage. Individuals, employers and the government will all be contributing to the system to be sure every American has health coverage.

Most Americans will find health insurance more affordable:
  • Starting in 2013, there will be a sliding scale of affordability credits for individuals and families up to 400% of the poverty level. These credits will phase out at earnings levels of $43,320 for single people and $88,200 for a family of four based on the 2009 poverty levels.
  • The sliding-scale credits limit individual family spending on premiums for the essential benefit package to no more than 1.5% of income for those in the lowest income and phasing up to no more than 12% of income for those at 400% of poverty level. So the most an individual earning $43,320 could pay for insurance annually is about $5,200 and insurance for a family of four would max out at $10,584.
  • The essential benefits package caps total out-of-pocket spending to prevent bankruptcy by limiting exposure to catastrophic costs. Total out-of-pocket expenses cannot exceed $5,000 for an individual or $10,000 for a family. For lower-income households the out-of-pocket cap ranges from $500 for an individual and $1,000 for a family.
  • Medicaid eligibility will start at 150% of the poverty level ($16,245 for an individual in 2009).
While $5,200 may sound high for an individual, I can tell you from personal experience it's less than half of what a person 55+ likely pays today. The best quote I could get for health insurance was $1,200 per month and that was with a $3,000 deductible. For many people who don't have employer-based health insurance, this bill will lower their costs. For those who do have employer-based health insurance reducing the number of uninsured whose coverage is paid for by those insured, health insurance premiums will likely be lower as well.

Businesses with payrolls over $500,000 will pay a penalty of 2% if they do not provide health insurance which will be used toward the government insurance exchange so their employees can purchase health insurance. The penalty rises to 8% for companies with annual payrolls over $750,000. Many small businesses will be eligible for a tax credit for health insurance offered to their workers.

So don't listen to the scare tactics. You won't be going to jail if you don't buy health insurance, but the IRS may try to collect a 2.5% penalty. That's $2,500 on a $100,000 taxable income.

Lita Epstein has written more than 25 books including Working After Retirement for Dummies.

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