For those going uninsured this year, the Obamacare penalty may seem paltry, but it's set to increase steeply in the next couple of years. In the particular case of tax penalties, what goes up does not come down (unless amended by law). A new NerdWallet study examines just how much the Obamacare penalty could cost for someone who never gets insured, and even the minimum estimates are staggering.
The study looked at minimum penalties for individuals and for families of four, assuming the breadwinner turns 27 this year (young adults can stay on their parents' insurance through age 26), and ran the numbers through age 64 (Americans are typically eligible for Medicare at age 65). The penalties have already been set for 2014, 2015 and 2016. For years after 2016, the penalty was calculated in two ways: by assuming a 2 percent annual increase, based on projected future inflation rates, and by assuming 2.78 percent annual increase, based by historical cost-of-living adjustments. The study did not take into account any medical costs for the uninsured -- only the tax penalty. Here's a look at what you could buy instead of paying a lifetime of penalties.
A lifetime of penalties for an individual: $36,556-$42,077
So what could you do with this much money? For more than half of the U.S. population, the obvious answer is that you could live for a year or more. With a per capita income of just over $28,000, a lifetime of penalties will total more than a year's income for many Americans.
Another option is a vacation -- or thirty. A recent survey found that the average cost of vacation is about $1,200 per person. This puts the number of vacations you could take instead of paying the penalty anywhere between 30-35. Or what if you were to make one big purchase -- like a luxury car? The sticker price of a 2014 BMW 320i fully loaded with a premium package and heated seats will run you $41,375.
A lifetime of penalties for a family of four: $109,668-$126,230
It's hard to believe that a tax penalty could total six figures, but a family of four could end up paying a hefty sum. This could make a pretty nice down payment on a mortgage. Depending on the house in question, having that much money up front could save thousands in interest. Another option is to put both kids through state college with tuition, books and fees (minus room and board).
In many states, however, average childcare costs exceed rent, and for some households, childcare takes over half the budget. Assuming a family of four includes two children, the lifetime cost of health care tax penalties could instead pay for childcare for both kids for three to four years, depending on the state.
The real-life impact of the penalty
It's interesting to compare what might be bought with the lost tax money from paying penalties. In reality, however, most people probably don't plan on skipping out on health insurance for the majority of their adult lives. After all, in addition to the penalty, those who don't have insurance will have to pay full price for all of their health care costs. With the median cost of an emergency room visit totaling more than $1,000 and more intensive procedures such as hip replacements at an absolute minimum of more than $15,000, the cost of the penalty is minor in comparison to the costs you could incur for going uninsured.
While a recent survey found that most people didn't know about the Obamacare deadline or much about the tax penalty this year, that is likely to change when hundreds of dollars of penalties start showing up. Since the minimum penalty rises steeply in 2015 and 2016, the cost will likely become burdensome for the uninsured soon, the NerdWallet study predicts. That -- along with increased awareness of the importance of health insurance and the streamlining of marketplace -- should help the number of uninsured dwindle away.