Obamacare penalty too small? Read the fine print

There's been much media discussion about how the Obamacare tax penalty may be too small to prod so-called young invincibles to buy health insurance come Jan. 1, 2014. Many news reports and commentaries have scoffed at the idea that Obamacare's tax penalty will be stiff enough to convince healthy 30-somethings to pay what could be a relatively hefty premium for coverage and also face high deductibles, copayments and coinsurance. Quite a few media reports, including those in the Washington Post, have described the penalty simply as $95 for the first year, 2014. Pundits have predicted many uninsured Americans will choose to pay that paltry penalty rather than pony up what could be a lot more to buy insurance they don't think they need.

But many Americans—and many journalists—may not be aware of what the Patient Protect and Affordable Care Act and the implementing IRS rule actually establish as the penalty in 2014 and beyond for failing to buy coverage.

Under IRS Regulation 148500-12, the penalty in 2014 is $95, or 1% of household income, whichever is greater. That means a single young invincible who earns an adjusted gross income of $40,000 who believes he's never going to get sick or injured, and chooses not to get insurance next year will owe the IRS not $95—but $400.

In 2015, that same person earning the same income will owe either $325, or 2% of household income—meaning his bank account is $800 lighter. And in 2016, that guy will owe either $695, or 2.5% of income—one crisp Grover Cleveland $1,000 bill removed from his wallet.

Are all these prognosticators really so confident that $400, then $800, then $1,000 penalties aren't big enough sticks to make the Obamacare insurance mandate work?

Follow Harris Meyer on Twitter: @MHHmeyer