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Health Insurance for Cheapskates: Why You Shouldn't Just Pay the Fine

obamacare-fine It's no secret that the rollout of the Affordable Care Act has been suffering from some serious glitches. (Ahem, including a website crash.) But if you're one of those insurance-free people who hasn't actually tried to sign up because you have no intention of buying health insurance anytime soon (we're talking to you, I'm-gonna-live-forever people), here's why you should think again.

First, the most obvious reason: Not having health insurance is like playing Russian roulette with your financial future. More than half of all personal bankruptcies in the United States can be traced at least partly to medical bills. According to one survey, 80 million adults are struggling under the weight of medical bills or medical debt.

And something as seemingly commonplace as a fracture from a skateboard accident could easily rack up $20,000 in bills.

"It doesn't take much to leave people in a medical lurch," says Karen Pollitz, a senior fellow at the Kaiser Family Foundation in Washington, D.C.

If you need a reminder of the bad old days before the Affordable Care Act—which, we must be honest, we're not sure are over yet—read How I Lost My Insurance, Stopped Taking My Medication and Had a Heart Attack.

Now, if you're still thinking, "Hey, the penalty for not having insurance is only $95 and my monthly premium will be way more than that!" the following QA is for you.

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Q: The penalty for not having insurance is only $95 and my monthly premium will be much higher. Why shouldn't I just pay the fine?

You're right, the penalty for not having insurance the first year is $95 or 1% of your family income, whichever is greater. Sounds great! But there's that tricky "whichever is greater," says Taylor Burke, associate professor of health policy at George Washington School of Public Health and Health Services in Washington, DC.

While most people will indeed end up paying only $95, there's a possibility that your penalty could be higher, up to $288 per family.

But that's just next year. The penalty will be higher after that. In 2015, count on 2% of income, up to $325 per adult or $975 per family. In 2016, you're looking at fines of 2.5% of income, up to $695 for each adult or $2,085 per family.

That fine may still seem piddling compared to the insurance premiums you'd pay, but remember that if you don't buy health insurance, you'll be paying the fine plus 100% of any medical costs you incur. Almost 30 million adults have used up all their savings to deal with the financial consequences of an illness or accident. How long until your savings run out?

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Q: What's the deadline for choosing a plan?

You have until March 31, 2014 to choose a plan before the individual mandate (the part of the law requires that you buy a plan or get hit with tax penalties) kicks in. However, it can take six weeks from application until coverage starts, so keep it in mind when shopping for a plan. If you sign up on March 31, 2014, your coverage won't start until May.

Q: What's the cheapest plan I can get away with? What about a Catastrophic Plan?

You may not qualify for this one. Under Obamacare, catastrophic insurance plans are only available to people under the age of 30 and people over the age of 30 who can show that no plan, even with subsidies, would cost less than 8% of their income.

Under this type of plan, the essential health benefits (see below) have to be covered but, other than that, you are responsible for all of your medical costs up to $6,350 per person. Only after you have forked over this $6,350 deductible will your coverage kick in and only for the rest of that year. It starts all over again come January 1.

"It's truly for only the young invincibles," says Burke.

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Q: OK, I'm thinking about buying a policy instead of paying the penalty. What's the cheapest one?

Insurance plans under Obamacare come in four basic levels of coverage: Bronze, Silver, Gold, and Platinum. Bronze and Silver plans have lower premiums (the amount you pay every month), but higher out-of-pocket costs (the amount you pay for hospital and doctor's bills before your insurance kicks in) than the Gold and Platinum varieties.

The lowest average premium nationally for a 27-year-old in most states is $129 a month for a Catastrophic Plan, $163 for a Bronze Plan, and $203 for a Silver Plan. This is before tax credits or subsidies (more on this later).

Your premium will vary depending on where you live (rural areas with fewer insurance providers and less competition, may be more expensive); family size; your age (older people tend to pay more); and whether or not you smoke. (Yes, smokers pay more—a lot more—than non-smokers, as much as 50% more in premiums. The take home message? Cheapskates should quit smoking, along with everyone else.)

But a cheap premium does not always mean a cheaper plan, says Burke, unless you never get sick or see the doctor.

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