ACA Penalty Increased Through 2016; Remained Steady in 2017 & 2018

There Is Still a Penalty in 2018, But It Will Be Eliminated As Of 2019

Average Obamacare individual mandate penalty will be nearly $1000 in 2016
Still uninsured? The average Obamacare penalty in 2016 is projected to be 5 times what it was in 2014. Tetra Images/Getty Images

One of the most controversial aspects of the Affordable Care Act is the shared responsibility provision, often referred to as the individual mandate penalty. The ACA requires most individuals to maintain health insurance coverage or pay a penalty. And yes, that's still the case in 2018. The penalty will be eliminated as of 2019, but people who are uninsured in 2018 will still have to pay a penalty on their 2018 tax returns (filed in 2019) unless they qualify for an exemption.

The penalty caught some people unaware when they filed their 2014 tax return—they found out the hard way when they realized they owed a penalty for not having had health insurance in 2014. Since open enrollment for 2015 had already ended before many Americans filed their tax returns for 2014, the government granted a one-time special enrollment period in the spring of 2015, allowing people another chance to enroll in 2015 coverage if they had just found out about the penalty when they filed their taxes.

At this point, midway through the fifth full year of ACA implementation, and after a full year of GOP efforts to repeal the ACA, awareness of the shared responsibility provision is much higher than it was prior to 2014. But there is still considerable confusion about how much the penalty is and when exactly it will be repealed. The legislation to repeal it was enacted in 2017, but the actual repeal of the penalty doesn't take effect until 2019—this has caused plenty of confusion.

Average Penalty in 2014 Was $210, for 7.9 Million Tax Filers

The IRS reported that the average tax filer who owed a shared responsibility provision penalty for 2014 had a penalty amount of about $210. That's based on the fact that the penalty in 2014 was the greater of $95 per uninsured adult (half that amount for a child), OR 1% of household income above the tax filing threshold.

7.9 million tax filers were subject to the penalty for being uninsured in 2014.

Average Penalty in 2015 Was $470, for 6.5 Million Tax Filers

The penalty was significantly higher for people who remained uninsured in 2015. The IRS reported that the average tax filer who owed a shared responsibility provision penalty for 2015 had an average penalty amount of $470—more than double the average penalty from the year before.

But the good news is that fewer people were subject to the penalty in 2015. The IRS reported that about 6.5 million tax filers owed the penalty on their 2015 returns, versus about 7.9 million who owed the penalty on their 2014 returns.

Average Penalty in 2016 Was $708, for 4 Million Tax Filers (preliminary data)

The penalty climbed sharply again for people who didn't have health insurance in 2016. For people who were uninsured in 2017, and for those who are uninsured in 2018, the penalty remains at the same level it was in 2016.

In 2017, the IRS published data based on 2016 tax returns that had been filed by April 27, 2017 (so this included most 2016 tax returns, but tax filers who had been granted extensions were still able to file 2016 returns after that point).

At that point, 4 million tax filers had filed returns for 2016 that included a penalty for being uninsured.

The average penalty was $708. 

The actual penalty amount varies depending on household size and income (you can calculate the penalty for your specific situation), but the calculations used to determine the penalty in 2015 and 2016 resulted in much higher total penalties than in 2014:

  • In 2015, the penalty was the greater of $325 per uninsured adult and $162.50 per uninsured child (up to a maximum of $975 per household), OR 2% of household income above the tax filing threshold. 
  • In 2016, the penalty was the greater of $695 per uninsured adult and $347.50 per uninsured child (up to a maximum of $2,085 per household), OR 2.5% of household income above the tax filing threshold.
  • Starting in 2017, the flat rate penalty was subject to inflation adjustments, although the 2.5% of household income penalty remained unchanged. For 2017 and 2018, however, the IRS confirmed that there would be no inflation adjustment for the flat rate penalty. So the penalty for being uninsured in 2018 is the same as it was in 2016 and 2017.
  • However, the maximum penalty that applies to people with very high income has grown steadily since 2014, as it's based on the national average cost of a bronze plan, and those rates have increased every year. So although the flat rate penalty is unchanged from 2016, and the percentage of income is also unchanged, the maximum amount that high-income tax filers have to pay for being uninsured is significantly higher for 2018 than it was for 2016.

Penalty Is Deducted From Your Tax Refund

If you get a refund from the IRS at tax time, the shared responsibility penalty will be subtracted from your refund. 80% of tax filers get a refund, which has averaged about $2,800 in recent years—more than enough to cover the average penalty owed by uninsured tax filers.

The IRS will continue to use this strategy through the 2019 tax filing season (for 2018 returns). After that, starting with the returns that are filed in 2020, there will no longer be a penalty.

Get covered instead

If you're uninsured and considering remaining that way, make sure you know how much your penalty will be when you file your taxes the following year. Particularly if you're eligible for a premium subsidy through the exchange, you may find that the penalty amount you'd otherwise have to pay would be enough to cover several months of subsidized health insurance premiums—instead of just paying a penalty and getting nothing at all in return.

Enroll through the exchange if you qualify for a subsidy, or if you think there's a chance your income might make you subsidy eligible at a later point in the year. But if you're certain there's no chance you'll be eligible for a premium subsidy, you can also consider off-exchange plans (subsidies are available in the exchange if your income doesn't exceed 400 percent of the poverty level, which is $98,400 for a family of four for coverage effective in 2018).

What Happens After the Penalty Is Eliminated?

The ACA's penalty for being uninsured will be eliminated after 2018. That means people who are uninsured in 2019 and beyond will not face a penalty, unless they live in a state that imposes one.

When the penalty is eliminated, some healthier people are expected to drop their coverage, while sick people will continue to maintain health insurance, as it provides more of a clear and immediate value to them. This effect is expected to be most profound in the individual market, as people with job-sponsored insurance are more likely to keep their coverage regardless of whether the federal government penalizes them for being uninsured.

So in the individual market, the projection is that the overall balance of the insured risk pool will tilt more towards sicker, older enrollees, as younger, healthier people opt to go without coverage or to switch to non-ACA-compliant coverage.

As a result, the Congressional Budget Office estimates that health insurance premiums in the individual market will be an average of 10 percent higher in 2019 and future years than they would have been if the individual mandate penalty had remained in effect. We're already seeing this effect in the early rate filings for 2019 that have been submitted in a few states.

Internal Revenue Service. Taxpayer Advocate Service. Reporting of the Individual Shared Responsibility Payments on TY2016 Returns Through April 27, 2017. May 2017.

Koskinen, John. Internal Revenue Service. Letter to Congress on preliminary results from the 2015 tax filing season related to Affordable Care Act provisions as of October 2015. January 2017.

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