How Do State-Based Individual Mandates Work?

If you live in Massachusetts, New Jersey, California, Rhode Island, or the District of Columbia, there's a penalty for being without health insurance, unless you qualify for an exemption. These states have their own requirements that residents have health coverage, most of which have been created since the federal individual mandate penalty was eliminated.

This article will explain why some states have created their own individual mandates, which states have them, and how they work.

From 2014 through 2018, the ACA's individual mandate included a penalty for non-compliance. This penalty was assessed on Americans who went without health insurance, unless they qualified for an exemption from the penalty.

But starting in January 2019, the federal penalty for being uninsured was reduced to $0. That change was enacted as part of the Tax Cuts and Jobs Act, which was signed into law in December 2017.

The elimination of the penalty was likely welcome news for people who had been hit with the penalty in prior years and planned to continue to be uninsured. But it also resulted in individual market health insurance premiums that are higher than they would otherwise have been.

At around the same time that the federal individual mandate penalty was being eliminated, the Trump administration created rules that make it easier for people to use short-term health insurance instead of ACA-compliant coverage. Under the revised rules, short-term plans can have much longer durations than were previously allowed.

Short-term health insurance does not count as minimum essential coverage, so relying on it prior to the end of 2018 resulted in a penalty. But once the federal penalty was eliminated, healthy people were increasingly drawn to the lower premiums offered by short-term plans. (DC and the four states that have created their own penalties for uninsured residents have also sharply restricted or eliminated short-term health plans.)

States Create Individual Mandates to Stabilize Their Markets

In an effort to mitigate premium increases, stabilize their individual health insurance markets, and prevent a spike in their uninsured rates, several states began considering state-based individual mandates.

Massachusetts already had a mandate, which they simply kept in place after the federal penalty was reset to $0. New Jersey and DC created individual mandates as of 2019, with penalties for non-compliance. California and Rhode Island joined them in 2020. Vermont also has an individual mandate that took effect in 2020, but the state has not created a penalty for non-compliance.

Maryland considered an individual mandate, but opted instead to create an "easy enrollment" system in which the state tax return asks residents about their insurance status, and the information is then used in an effort to get people insured. (Maryland's approach is described in more detail below.) Several other states have since followed suit with their own easy enrollment programs.

Massachusetts

The individual mandate in Massachusetts pre-dates the ACA. The state implemented a mandate in 2006, and it has remained in place ever since. But from 2014 through 2018, federal individual mandate penalties were subtracted from the state penalty, ensuring that Massachusetts residents didn't have to pay double penalties for being uninsured.

And in Massachusetts, the penalty only applies to adults, whereas under the ACA, families also had to pay a penalty for having uninsured children. Starting with the 2019 tax year (for returns filed in early 2020), Massachusetts simply continued to impose the existing state mandate penalty, but there is no longer a federal penalty to deduct from the state penalty.

New Jersey

New Jersey lawmakers passed legislation (Assembly Bill 3380) in the 2018 legislative session to implement an individual mandate and associated penalty in New Jersey, beginning in 2019. The penalty uses the same general guidelines that were used for the ACA's penalty. Maximum penalties in New Jersey are equivalent to the average cost of a bronze plan in New Jersey, however, rather than the national average cost of a bronze plan.

Public support for the ACA is strong in New Jersey, but more than half of polled residents were opposed to the idea of a state-based individual mandate as of 2017. Support for the mandate increases, however, as people are informed about how a mandate helps to prevent adverse selection and stabilize the insurance market.

District of Columbia

In February 2018, the board of directors for the DC health insurance exchange unanimously approved a resolution recommending an individual mandate in DC, although the city council had the final say.

DC's Mayor, Muriel Bowser, unveiled her proposed Fiscal Year 2019 Budget in March 2018, which included $1.1 million in funding to implement an individual mandate in DC.

The city council approved a budget in June, and it included the individual mandate and associated penalty. Mayor Bowser signed it into law in September 2018. The District's new "Individual Taxpayer Health Insurance Responsibility Requirement” took effect in January 2019.

California

California enacted legislation in 2019 (SB104 and SB78) that created a state-based individual mandate, effective in 2020. The penalty for non-compliance is modeled on the ACA penalty that was used by the IRS until the end of 2018, so uninsured California residents can expect to pay a penalty of at least $695, unless they're eligible for an exemption.

At the same time, California also appropriated $295 million in state funding to provide additional premium subsidies to state residents with income as high as 600% of the poverty level, since the ACA's subsidies only extended to 400% of the poverty level at that point.

The state-based premium subsidies made it easier for residents to comply with the mandate, as they make coverage more affordable. But California's state-based subsidies were no longer necessary as of 2021, because the American Rescue Plan's subsidy enhancements made the federal subsidies larger than the previous combination of state and federal subsidies. And the Inflation Reduction Act has extended that through 2025.

Rhode Island

Rhode Island created both an individual mandate and a reinsurance program, and designed it so that the individual mandate penalty revenue is used to provide funding for the reinsurance program. Reinsurance helps to keep premiums lower in the individual market, and so does an individual mandate. So both programs work together to keep coverage more affordable in Rhode Island.

Rhode Island's individual mandate penalty took effect in 2020 and is modeled on the federal penalty that was used until the end of 2018. So uninsured residents can expect a penalty of at least $695.

Vermont Has a Mandate, But No Penalty

Lawmakers in Vermont passed H.696 in May 2018, and Governor Phil Scott signed into law the following week. H.696 called for an individual mandate in the state as of January 1, 2020.

Initially, the legislation called for a January 2019 effective date, and detailed the specifics of the penalty that would apply (largely the same as the ACA's penalty for being uninsured). But the bill was later updated to remove the penalty specifics, and a conference committee agreed on a 2020 effective date. 

The version of the bill that the governor signed imposes an individual mandate as of 2020 but it didn't include any specifics in terms of a penalty for non-compliance. A working group met in 2018 to address the issue, and lawmakers considered legislation in 2019 that would have created a penalty associated with the individual mandate. But the legislation that was enacted ultimately did not include an individual mandate penalty.

So although Vermont residents are required to maintain health insurance as of 2020, there is not currently a mechanism for enforcing that requirement. The state is planning to use insurance information on tax returns in order to provide targeted outreach to help residents get enrolled in affordable health coverage.

States That Considered Mandates But Have Not Implemented Them

Several other states have considered the possibility of a state-based individual mandate, but have not yet enacted the necessary legislation.

Hawaii

The Hawaii Senate passed S.B.2924 in March 2018 by a vote of 24-1. The bill would have implemented an individual mandate and associated penalty in Hawaii, but it did not advance out of the House Finance Committee during the 2018 session.

The logistics of the mandate, including exemptions, would have closely mirrored the ACA's individual mandate, but the amount of the penalty was not clarified in the legislation—a point that the Hawaii Department of Taxation repeatedly noted in testimony about the bill.

The Department of Taxation also expressed "concerns with its ability to properly administer this penalty," given that "the Department is not an expert on health insurance coverage," and recommended that if the state does implement a mandate and penalty, a third party (ie, not the Hawaii Department of Taxation) should be responsible for determining whether tax filers have creditable coverage.

Connecticut

Connecticut lawmakers considered two bills in 2018 that would each have implemented an individual mandate, but with very different mechanisms. However, by April 2018, the individual mandate provision had been removed from one bill, and the other bill had not advanced at all.

H.B.5039, as introduced, would have implemented an individual mandate with a penalty a little smaller than the ACA's penalty. It would have amounted to the greater of 2% of household income or $500 per uninsured adult, with no penalty for children (in contrast, the ACA's penalty was the greater of 2.5 percent of household income or $695 per uninsured adult and $347.50 per uninsured child).

The legislation also contained various other healthcare reform proposals. But the House committee that advanced the bill in April 2018 removed the individual mandate provision altogether, and the legislation never reached a full floor vote.

H.B.5379 would have implemented an individual mandate with a much larger penalty—up to $10,000—but would have allowed people who don't qualify for premium subsidies (and for whom health insurance would cost more than 9.66% of household income) to deposit the mandate penalty into a healthcare savings account instead of just paying it to the government. (the economics and logistics of the proposal are outlined here). This was the strongest individual mandate that any state considered, but it did not advance in the 2018 session. 

To clarify, the ACA's individual mandate penalty could have been as high as $16,980 for a family of five or more people who were uninsured in 2018. But it was very rare for a household to pay a penalty of that size under the ACA. A household would have to have income well in excess of $600,000 in order to reach that penalty level, and it's unusual for a household with that sort of income to be without health insurance.

But under Connecticut's H.B.5379, the $10,000 penalty would have applied to a household earning a little over $100,000. Smaller penalties would have applied to households with lower income, but the penalties would have been equivalent to the cost of the lowest-cost silver plan. People would have had the option of spending the money on a penalty (and getting nothing in return) or spending the same amount of money on a silver plan in the exchange—or spending even less and getting a bronze plan.

One of the criticisms of the ACA's individual mandate penalty was that it was too weak, with the penalty amount much lower than the cost of health coverage for enrollees who don't receive significant premium subsidies. H.B.5379 was an effort to eliminate the appeal of paying the penalty in lieu of buying health coverage since the penalty would no longer have been less expensive than purchasing coverage.

Maryland

Maryland considered a unique individual mandate and penalty in the 2018 legislative session, but the legislation didn't pass. Instead, Maryland enacted legislation in 2019 that created an Easy Enrollment Health Insurance Program.

The new program is a less punitive approach than an individual mandate with a penalty. As is the case in states with individual mandates, Maryland's tax return (starting with the 2019 tax year) asks residents whether they were insured during the tax year. But instead of penalizing those who were not, the state uses the data to try to get uninsured residents enrolled in coverage (many are eligible for free or very low-cost coverage, thanks to Medicaid, CHIP, and subsidized plans in the exchange).

The year before, Maryland lawmakers had considered legislation that would have created a more traditional individual mandate and penalty. But even that legislation took a less punitive approach to the mandate penalty idea. The Protect Maryland Health Care Act of 2018 called for a variety of market stabilization measures, including an individual mandate starting in 2019. 

The legislation did not pass, but it represented a unique approach to the concept of an individual mandate. The size of the mandate penalty would have been the same as the ACA's penalty (the greater of 2.5% of income, or $695 per uninsured adult—half that amount for a child—with the flat rate penalty adjusted for inflation each year). But the assessment of the penalty would have been different. Under the ACA, when a penalty was assessed by the IRS, the money was directed to the general Treasury fund, and the person who paid the penalty did not gain anything.

But under the proposed terms of Maryland's mandate, the state would have used the penalty amount as a "down payment" for a health insurance plan for the person. If the person was eligible for a premium subsidy and the subsidy plus the penalty/down payment would have been enough to fully cover the cost of any available plans (ie, the plan would have zero additional premiums), the state would have automatically enrolled the person in whichever zero-premium plan had the highest actuarial value, unless the person was to specifically opt-out (in which case, the penalty would have been sent to a general insurance stabilization fund instead).

If there weren't any zero-premium plans available, the money from the penalty/down payment would have been kept in an interest-bearing account for the consumer to use during the following open enrollment, to apply towards the cost of any available health insurance plan. If the person still opted to go without insurance at that point, the penalty money would have been sent to the general insurance stabilization fund after the end of open enrollment.

But under Maryland's proposal, the state would make every effort to let uninsured residents use their penalty payments towards the cost of health insurance, rather than remaining uninsured and getting no direct benefit from the payment of the penalty. 

This approach is more administratively complex than just adding a penalty to income tax returns and directing it to a general fund, but it's also more likely to improve the generally negative impression people have of the individual mandate and associated penalty, so it's an approach that other states might consider in future legislative sessions.

Washington

SB6084, considered by state lawmakers in 2018, would have created a task force in Washington dedicated to "exploring options on implementing and enforcing a state-level requirement to maintain minimum essential health care coverage." The bill passed the Washington Senate in February 2018, but failed to advance in the House by the time the legislative session ended in March.

The legislation noted that Washington's individual health insurance market collapsed in the 1990s, due in large part to the fact that the state required health insurance to be guaranteed-issue (ie, offered regardless of health status) starting in 1993, but never implemented the individual mandate that had been slated to take effect several years later.

Lawmakers said that they wished to avoid a repeat of the late 1990s in Washington, when individual market plans were not available at all.

But it should be noted that a full market collapse, like Washington experienced in the 1990s, won't happen under current rules—even without an individual mandate—because the ACA's premium subsidies will continue to keep coverage affordable for most enrollees, making healthy people more likely to remain insured and preventing a "death spiral."

And the American Rescue Plan made subsidies larger and more widely available, further stabilizing the individual/family insurance market in every state. Those subsidy enhancements have been extended through 2025 by the Inflation Reduction Act.

What to Expect Going Forward

For the time being, there's a penalty for being uninsured if you live in DC, California, Massachusetts, New Jersey, or Rhode Island. Other states may eventually join them, but the insurance markets in most states are fairly stable for the time being, and no additional individual mandate legislation has advanced in other states during the past few legislative sessions.

This is partly due to the fact that the markets have largely stabilized—even without an individual mandate penalty—and also the fact that individual mandate penalties tend to be unpopular with voters. So lawmakers in other states are likely to focus more on things like reinsurance and easy enrollment programs, instead of individual mandates.

Summary

Residents in DC, California, Massachusetts, New Jersey, and Rhode Island must pay a penalty if they don't have health insurance, unless they're eligible for an exemption. That was the case nationwide from 2014 through 2018, as a result of the Affordable Care Act. But the federal penalty was eliminated as of 2019. Massachusetts already had a health insurance mandate prior to the ACA. DC and the other three states created theirs after the ACA's federal penalty was eliminated.

A Word From Verywell

Regardless of where you live, going without health insurance isn't a great idea. Obviously, you don't want to be subject to a penalty on your tax return. But you also don't want to be stuck without health coverage when you need it most.

Your ability to enroll in a health plan (from an employer or self-purchased) is limited to an annual open enrollment period and special enrollment periods triggered by qualifying life events. So you wouldn't be able to sign up for a plan right away if and when you were to need medical care. Maintaining continuous coverage is a much better approach, as it ensures that your coverage will be there when you need it.