So you’ve signed up for health insurance and have received your member card. What happens if you drop your insurance now? Well, not surprisingly, you won’t receive any insurance coverage or reimbursement for healthcare expenses. But what you may not realize is that dropping your coverage will trigger the federal tax penalty, under the Affordable Care Act, for people who do not carry health insurance. Moreover, you won’t be able to reinstate or replace your qualified health coverage until the next open enrollment period, which does not begin until November.

What you should consider before dropping coverage:

  • Having an insurance card does not necessarily count as proof of insurance. You have to maintain active health coverage to avoid the tax penalty, which is still in effect for the 2017 tax year. Unless you are paying your premiums, you are not considered to have active coverage.
  • If you cancel coverage, you will not be allowed to re-enroll until the next annual Open Enrollment Period unless you qualify for a Special Enrollment Period (voluntarily dropping your coverage does not count as a qualifying life event).
  • If you aren’t enrolled in a health insurance plan for the entire year, you may have to pay the tax penalty for the months you don’t have coverage. The tax penalty for 2017 is the same as it was in 2016, but it may increase (or be removed) in 2018. If you did not have coverage in 2017, you’ll pay the higher of these two amounts:
    • 5 percent of your yearly household income
    • Or $695 per person for the year ($347.50 per child under 18), with a cap of $2,085 for families
  • If you feel you need to cancel, call your local HealthMarkets agent, or give us a call at (800) 304-3414 to talk you through the process. Depending on your household makeup, the process for canceling can be confusing or lead to unintended consequences.

Your cancellation can take effect as soon as 14 days from the day you cancel. The insurance company will collect premiums for this final two-week period of coverage. After that, without obtaining a short-term or supplemental plan, you risk financial exposure to the full cost of any incurred medical expenses due to illness or injury. You will also be subject to the tax penalty.

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References

U.S. Centers for Medicare & Medicaid Service. (2015, Dec. 11). Understanding the fee for not having health insurance coverage in 2016.  https://www.healthcare.gov/blog/the-fee-for-not-having-health-insurance-2016/

U.S. Centers for Medicare & Medicaid Service. The fee for not having health insurance.   https://www.healthcare.gov/fees/fee-for-not-being-covered/

U.S. Centers for Medicare & Medicaid Service. How to estimate your fee for 2016.  https://www.healthcare.gov/fees/estimate-your-fee/

U.S. Centers for Medicare & Medicaid Service. How to make updates when your income or household change. https://www.healthcare.gov/reporting-changes/cancel-plan/

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