Is There Still an Obamacare Penalty for Being Uninsured in 2018?

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Yes, the ACA's individual mandate penalty is still in effect, and will continue to be in effect in 2018. If you're uninsured in 2018 and not eligible for an exemption, you'll owe a penalty when you file your taxes in early 2019. But after that, the penalty will not be assessed.

Nearly eight years after it was enacted, most parts of the Affordable Care Act (aka Obamacare) are supported by the majority of Americans. This includes guaranteed-issue coverage regardless of pre-existing conditions, premium tax credits (subsidies) that make coverage more affordable, coverage for essential health benefits, the elimination of annual and lifetime benefit maximums, and the expansion of Medicaid.

But the individual shared responsibility penalty, aka the individual mandate, has remained an unpopular provision of the law. The mandate went into effect in 2014 and requires all Americans to maintain health insurance coverage unless they're eligible for an exemption. There's a penalty assessed by the IRS on people who don't maintain coverage and who aren't eligible for an exemption.

The Penalty Started Out Small But Has Grown Over Time

  • In 2014, the penalty was $95 per uninsured adult (half that amount per child), up to $285 per family, OR 1 percent of household income above the tax filing threshold.
  • The IRS reported that among tax filers who owed a penalty on 2015 returns, the average penalty was $210.
  • In 2015, the penalty was $325 per uninsured adult (half that amount per child), up to $975 per family, OR 2 percent of household income above the tax filing threshold.
  • The IRS reported that among tax filers who owed a penalty on 2015 returns, the average penalty was $470.
  • In 2016, the penalty was $695 per uninsured adult (half that amount per child), up to $2,085 per family, OR 2.5 percent of household income above the tax filing threshold.
  • The 2.5 percent of income penalty was slated to remain level in 2017 and beyond, but the flat-rate penalty was to be adjusted annually for inflation, starting in 2017. However, the IRS announced in late 2016 that the inflation adjustment for 2017 would be zero, and the same thing happened for 2018; the flat-rate penalty for 2017 and 2018 has thus remained at $695 per adult, half that amount for children, up to $2,085 for a family.

    Is the Penalty Still Being Assessed Under the Trump Administration?

    Yes, the penalty is still being assessed. That will change as of 2019, but people who are uninsured in 2018 will still owe a penalty when they file their taxes in early 2019.

    President Trump campaigned on a promise to repeal the ACA and replace it with something else. Republicans in the House passed the American Health Care Act (AHCA) in 2017 but the legislation failed in the Senate, despite repeated attempts by GOP Senators to pass it. 

    Ultimately, Republican lawmakers passed the Tax Cuts and Jobs Act and President Trump signed it into law in December 2017. Although the tax bill leaves the rest of the ACA intact, it repeals the individual mandate penalty, as of 2019 (other provisions of the tax bill take effect in 2018, but the individual mandate repeal is delayed by a year).

    On his first day in office, Trump issued an executive order aimed at "minimizing the economic burden" of the ACA. It essentially instructed federal agencies to be as lenient as possible in their enforcement of ACA taxes and penalties.

    The penalty itself is specified in the text of the ACA, meaning that legislation (as opposed to just regulatory action by HHS or the IRS) was necessary in order to change or eliminate the penalty. The tax bill will repeal the penalty as of 2019, but until then, the IRS has to continue to enforce it.

    However, under the terms of Trump's executive order, the IRS can more lenient in terms of granting exemptions from the penalty. And they quietly made a change in February 2017, noting that they would continue to accept "silent returns" for 2016. But that changed in early 2018, when tax returns for 2017 were processed. Here's what it all means:

    • On line 61 of Form 1040, the IRS asks all tax filers whether or not they had health insurance coverage throughout the year (this has been the case since 2014). Most Americans do have health insurance, and can just check the box that says "full year coverage" and carry on with the rest of the return. But for those who didn't have full-year coverage, the process is a bit more complex: they have to either attach Form 8965 for an exemption, or calculate the applicable penalty.
    • For 2014 and 2015 tax years, the IRS did not reject returns when line 61 was left blank (ie, a "silent" return). Most tax filers completed line 61 anyway (about 90 percent of Americans have health insurance, so this isn't really an issue for most filers, and millions of tax filers did have penalty assessments for 2014 and 2015).
    • For 2016 tax returns, however, the IRS had intended to stop accepting silent returns. They were going to begin rejecting returns that didn't indicate whether the tax filer had health insurance during the year (and although the IRS does not have their normal enforcement authority for the ACA penalty, it's always illegal to lie to the IRS).
    • The IRS reversed course, however, and continued to accept silent returns for the 2016 tax year. They noted that the change was a direct result of Trump's executive order.
    • However, for 2017 tax returns, filed in early 2018, the IRS no longer accepted silent returns. Every tax filer had to answer the question about whether they had health insurance during the year. This will continue to be the case with 2018 returns that are filed in early 2019, as the penalty will still apply for people who were uninsured in 2018. After that, it won't matter as much. Although the individual mandate will technically still be in effect in 2019 and beyond, there will no longer be a penalty associated with non-compliance. The IRS will likely focus instead on reconciling premium subsidies and enforcing the employer mandate.

    So although there has been considerable confusion in terms of what's going on with the individual mandate penalty under the Trump Administration, the filing process with regards to the individual mandate was the same for 2014-2016 returns, but became more strict for 2017 returns, as silent returns were no longer accepted. And although the penalty will ultimately be eliminated, there will still be a penalty, assessed in 2019, for people who are uninsured in 2018.

    How Will Elimination of the Individual Mandate Penalty Affect Your Health Insurance?

    Republican lawmakers introduced a variety of health care reform bills during the 2017 legislative session, aimed at repealing or changing various aspects of the ACA. However, the bill that ultimately passed, the Tax Cuts and Jobs Act, leaves most of the ACA intact. The only part that's changed is the individual mandate penalty. And while it's eventually eliminated by the tax bill, that won't take effect until 2019. People who are uninsured in 2018 will still face a penalty when they file their 2018 taxes in early 2019.

    The elimination of the individual mandate penalty in 2019 is contributing to higher premiums for 2019, because insurers expect that the people likely to drop their coverage after the penalty is eliminated will be healthy, whereas sick people will tend to keep their coverage. The penalty's original purpose was to encourage healthy people to join the risk pool, as a balanced risk pool (with enough healthy people to offset the claims costs of the sick people) is necessary for any health insurance product to function.

    According to the rate filings that have been publicized as of July 2018, a significant portion of the average proposed rate hikes across the country is due to the impending elimination of the individual mandate penalty, along with the Trump Administration's efforts to expand access to short-term plans and association health plans (those plans are likely to appeal to healthier individuals, so their expansion has the same effect as the penalty repeal, in terms of reducing the number of healthy people who maintain ACA-compliant individual market coverage).

    Some States Will Continue to Have Individual Mandate Penalties

    With the impending elimination of the federal individual mandate penalty, some states have considered implementing their own mandates and penalties:

    • Massachusetts already had a mandate and penalty, which has been in place since 2006. The state has not been assessing the penalty on people for whom the federal penalty applied, but will start assessing the penalty again in 2019.
    • New Jersey will have an individual mandate and an associated penalty starting in 2019.
    • The District of Columbia will also have an individual mandate and associated penalty as of 2019.
    • Vermont will have a mandate and penalty starting in 2020, but the state is still working out the details of how it will be implemented, and there will not be a mandate or penalty in Vermont for 2019.

    A Note From Verywell

    The ACA's individual mandate is unpopular, but premiums for individual market health insurance will be higher once it's eliminated, since coverage will continue to be guaranteed-issue. Prior to 2014, there was no mandate, but insurance companies in most states could decline applications or charge additional premiums based on applicants' medical history.

    Once coverage became guaranteed-issue (meaning insurers could no longer consider applicants' medical history), it became necessary to impose some sort of measure to ensure that people maintain coverage year-round. Otherwise, people would be more likely to go without coverage when they're healthy, and only sign up for coverage when they're in need of health care, which would result in higher premiums (the limited enrollment periods are the other part of the incentive to ensure that people maintain coverage year-round).

    Although premiums will increase, starting in 2019, by more than they would have if the individual mandate penalty had remained in place, premium subsidies will grow commensurately, offsetting much of the increase for millions of enrollees. People who don't get premium subsidies, however, and who purchase their own health insurance, will bear the full brunt of the higher premiums (people who don't get premium subsidies include those affected by the family glitch, in the Medicaid coverage gap, and people whose household income is above 400 percent of the poverty level, after subtracting contributions to pre-tax retirement plans and HSAs).

    And we're all still required to maintain health insurance in 2018. Penalties will be assessed in early 2019, on 2018 tax returns, for people who are uninsured in 2018 and not eligible for an exemption. But even after 2018, it will be wise to have health insurance. Not having coverage means that health care for a serious ailment could be unaffordable or completely inaccessible, and it will continue to be impossible to sign up outside of open enrollment if you don't have a qualifying event (and many of the qualifying events now require the person to have already had minimum essential coverage in place before the qualifying event). A serious illness or injury doesn't count as a qualifying event.

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