Health Insurance Mandate

One of the more controversial parts of the Affordable Care Act is the issue of a health insurance mandate – the requirement that virtually all Americans must have healthcare coverage. This article will explain why the ACA included an individual mandate, how it was enforced, and why the federal penalty for non-compliance is no longer assessed.

The vast majority of people in the U.S. have health insurance through work or a public plan such as Medicare and Medicaid, and that was already the case prior to 2014 when the individual mandate took effect. The mandate, therefore, targeted the portion of Americans who did not have health insurance.

Although the federal individual mandate still exists, there is no longer a penalty for non-compliance. The penalty, which was assessed on tax returns for tax years 2014-2018, was reduced to $0 as of 2019 under the Tax Cuts and Jobs Act.

States That Have Their Own Individual Mandates

Although there is no longer a federal penalty for being uninsured, some states have established their own individual mandates and are imposing penalties for non-compliance through their state tax systems.

Massachusetts has had an individual mandate since 2006. The state didn't impose penalties from 2014 through 2018, since uninsured residents were subject to the federal penalty instead. But Massachusetts reinstated its own penalty as of 2019.

New Jersey created an individual mandate that took effect in 2019, and so did DC. In both cases, there are penalties for non-compliance.

Starting in 2020, California and Rhode Island also implemented individual mandates and penalties for non-compliance. Vermont created an individual mandate that took effect in 2020, but they did not create a penalty to go along with it.

Why Did the ACA Include an Individual Mandate?

The individual mandate was included in the ACA in an effort to prevent adverse selection. Prior to the ACA, individual/family health insurance could only be obtained in most states if the applicants were fairly healthy. That's because insurers used medical underwriting to determine eligibility for coverage, meaning that they could decline an application if the person had significant pre-existing conditions.

But the ACA banned that, as of 2014. Insurers in the individual/family market had to start accepting all applicants, regardless of their medical conditions.

To ensure that people wouldn't just wait until they were sick to enroll in coverage (which could cause a death spiral in the insurance markets), the ACA included limited enrollment windows (ie, you can't just sign up anytime you want) and a requirement that people maintain coverage year-round or pay a penalty to the IRS.

The limited enrollment windows are still applicable: In most states, open enrollment runs from November 1 through January 15. And outside of open enrollment, you can only sign up for coverage if you qualify for a special enrollment period.

And although the federal requirement to maintain health coverage still exists, there is no longer a penalty for non-compliance.

Must I Have Health Insurance?

From 2014 through 2018, all lawfully present U.S. residents were required to have "minimum essential coverage." That includes coverage through your job, a government plan (such as Medicaid, Medicare, or CHIP), or a major medical health plan you have purchased on your own.

But it does not include "excepted benefits" like short-term health insurance, accident supplements, fixed indemnity plans, or critical illness plans.

If you didn't have health insurance during those years, you had to pay a tax penalty unless you were eligible for an exemption from the penalty. The IRS reported that while 7.9 million tax filers owed a penalty for being uninsured in 2014, another 12 million tax filers were exempt from the penalty, despite being uninsured.

Now that there's only a penalty for being uninsured in a handful of states, most Americans can choose to forego coverage without facing a penalty on their tax returns. But even when the penalty applied nationwide, it paled in comparison to the challenges people faced if they chose to go without health insurance and then found themselves needing significant medical care.

Because enrollment windows for health insurance—including employer-sponsored plans as well as plans that people can purchase on their own—are limited to just a few weeks per year, it can be difficult or impossible to sign up for coverage mid-year (if you have a qualifying event, you can enroll—but a need for medical care is obviously not a qualifying event).

So going without coverage is a risky proposition, and could leave you without realistic access to medical care when you need it most. It's true that emergency rooms cannot turn you away due to lack of insurance, but they're only required to assess your condition and stabilize you—they don't have to provide any further treatment if you're unable to pay for it.

Making Coverage Affordable: Subsidies & Medicaid Expansion

In addition to requiring people to maintain coverage, the ACA included some important provisions to ensure that coverage would be affordable for most Americans.

Medicaid expansion

Starting in 2014, Medicaid was expanded under the ACA to households with incomes up to 138% of the federal poverty level (that's at little over $20,000 for a single individual in 2023 in the continental U.S.). 

This was an essential part of making coverage available to low-income Americans, but a landmark 2012 Supreme Court ruling made Medicaid expansion optional for the states, and as of early 2023, there are still a dozen states that have not expanded Medicaid.

(South Dakota plans to expand Medicaid in mid-2023, and North Carolina is expected to expand Medicaid by early 2024, reducing the number of non-expansion states to ten.)

States that have refused to expand Medicaid have created a coverage gap: Non-disabled adults in those states with income below the poverty level are not eligible for premium subsidies in the exchange or Medicaid, which makes coverage essentially out of reach.

Premium subsidies and Cost-Sharing Reductions

Depending on your income, if you're not eligible for Medicaid, you may be eligible for a premium tax credit (premium subsidy) that will help to offset some or all of the cost of purchasing private coverage in the health insurance exchange.

These premium tax credits are normally only available to households that don't earn more than 400% of the poverty level. But for 2021 through 2025, the American Rescue Plan and Inflation Reduction Act have eliminated this income cap for subsidy eligibility.

The premium subsidy can either be paid directly to your insurer, or you can opt to claim it on your tax return. It's a refundable tax credit, so you'll receive it even if you do not owe any income taxes. 

If your income doesn't exceed 250% of the poverty level, there's also a subsidy available to lower your out-of-pocket expenses.

If I Buy Insurance, Can a Health Plan Turn Me Down If I'm Sick?

No! (unless you buy a plan that's not subject to the ACA's requirements, such as a short-term health plan or fixed indemnity plan).

All individual market plans became guaranteed-issue as of January 2014. Enrollment is limited to the annual open enrollment window that starts each fall on November 1, or a special enrollment period triggered by a qualifying life event, but insurers no longer ask about medical history when you apply for coverage.

(Note that if you're working with a broker, Navigator, or enrollment assistor, they will still ask you about the doctors you need to see and any prescription drugs you take. This is not related to eligibility for coverage, but it's necessary in order to help you select a plan that has your doctors in-network and includes your medications on its covered drug list.)

Pre-existing conditions are covered on all plans now, except grandfathered individual market plans and, of course, plans that aren't subject to the ACA's regulations at all.

Do I Have to Pay Higher Taxes Because of Health Reform?

Probably not, unless your income is quite high. Effective January 1, 2013, individuals who earn more than $200,000 a year or couples earning more than $250,000 a year—about 2% of Americans—began to see an increase in their income-related taxes, including:

• An extra charge of 0.9% for Medicare Part A hospital insurance, an increase from 1.45% to 2.35%. For example, if you are an affluent family with an annual income of $350,000, you're paying an additional $900 a year in Medicare taxes.
• A 3.8% Medicare tax on unearned income such as capital gains, dividends, and royalties. Previously, Medicare taxes were only assessed on earned income, such as salary from your job or revenue from self-employment.

However, there are some tax-related issues that affect a greater number of people. These include:

• The tax penalty for not having health insurance that applied from 2014 through 2018.
• Some changes to how you manage a health savings account (HSA). From 2011 through 2019, you could not be reimbursed on a tax-free basis for the costs of over-the-counter medications. But that changed in 2020, as a result of the CARES Act, which also relaxed the rules to allow tax-free HSA funds to be used to pay for menstrual products.

Summary

The Affordable Care Act included provisions to make health insurance more affordable (subsidies) and accessible (guaranteed-issue coverage). But in order to prevent people from only buying coverage when they were in need of health care, the law also included limited enrollment windows and a requirement that most people maintain health coverage or pay a penalty to the IRS.

The requirement to maintain coverage is known as an individual mandate. From 2014 through 2018, it was enforced with a penalty collected by the IRS. But starting in 2019, the penalty was eliminated as a result of the federal Tax Cuts and Jobs Act. Several states have created their own individual mandates, with penalties for non-compliance. But there is no longer a federal penalty for not having health insurance.

A Word From Verywell

Even though there's no penalty—in most states—for not having health insurance, it's still essential to maintain coverage. If you go without health insurance and then find yourself in need of medical care, you won't be able to sign up outside of open enrollment unless you have a qualifying life event (and needing medical care is not a qualifying life event). Fortunately, most Americans are eligible for heavily subsidized coverage, either from an employer, through the exchange/marketplace, or via Medicaid/CHIP or Medicare.