Andrea K. Walker / The Baltimore Sun

Under the health reform law, everyone who files a federal income tax form is required to have insurance. Most employers also have to offer it. The idea is that for reform to work, everyone needs to enroll so that there is a good mix of healthy and sick people paying into and using the system. People can choose not to have insurance, and companies can choose not to offer plans. But it will cost them.

Analysts with The Hilltop Institute at the University of Maryland explain the penalties for those who choose not to participate in reform.

Q: What if an individual chooses not to buy health insurance?

A: Individuals choosing not to have health insurance in 2014 will be subject to a penalty that accrues for each month he or she goes without coverage. There are exceptions for individuals whose reported income is below the federal tax-filing threshold or who have one of the exemptions specified in federal law, such as religious conscience or hardship. The federal tax-filing threshold varies based on filing status. Single people under age 65, for example, don't have to file if annual income is below $9,750. (The IRS offers a breakdown on its website.)

The penalty will be the greater of two measures:

• A fixed percentage of “applicable income” — defined as the difference between an individual's household income and the applicable tax-filing threshold. The percentages are: 1 percent for 2014; 2 percent for 2015; and 2.5 percent for 2016 and beyond.

• A fixed annual dollar amount assessed on each taxpayer and dependent. The fixed amounts are: $95 in 2014; $325 in 2015; and $695 in 2016 and beyond.

Q: What happens if a small business chooses not to offer health insurance?

A: Businesses with fewer than 50 full-time-equivalent employees are not required to provide health insurance and therefore are not subject to penalties. An employee is considered full time if he or she works 30 hours or more a week. Employees of small businesses are eligible to purchase health insurance through a state exchange, or open marketplace. Depending on the individual's household income, some people receive premium tax credits to help offset costs.

Small Business Health Options Program Exchanges, operated by the state or federal government, will allow small employers to pool together to make the provision of health insurance less costly. In addition, tax credits to cover the cost of providing coverage to employees are available to small employers with fewer than 25 employees to further incentivize the provision of health coverage. These small employers may claim this credit for two consecutive years.

Q: What happens if a large employer chooses not to offer health insurance?

A: A large employer, with 50 or more full-time-equivalent employees, will be penalized. The penalty for any applicable month is:

1⁄12th x $2,000 x (total number of full-time employees minus 30)

The penalty has been delayed until January 2015.

If a company offers coverage but an employee chooses to buy a plan from the state exchange and to use tax subsidies to help pay for it, that company can be penalized if its health plans are not “affordable.” (If the coverage exceeds more than 9.5 percent of an employee's household income, it would be considered unaffordable.) The company can also be penalized if it does not pay at least 60 percent of the costs associated with services covered by its health plan. The penalty for any applicable month is:

1⁄12th x $3,000 x (total number of full-time employees minus 30)

This penalty is also delayed until January 2015.

Though the penalty applies only when an employee is receiving financial assistance, the penalty calculation considers all employees, including part-time employees. The large employer would also be subject to a penalty for seasonal employees for the month in which such workers are full-time and qualify for premium tax credits or other financial assistance.

Q: What happens if a large employer that is a provider of a self-insured plan, or on that pays for its employees' medical costs, chooses not to offer health insurance to its employees?

A: The employer still will be responsible for the penalty whether the plan is self-insured or fully insured. Under a fully insured plan, the company pays a fixed premium to an insurance carrier.