Is There Still a Penalty for Being Uninsured in 2021?

Penalties Still Exist in DC and Four States

The ACA's individual mandate penalty, which used to be collected by the IRS on federal tax returns, was reduced to $0 after the end of 2018. In most states, people who were uninsured in 2019 or 2020 were not assessed a penalty, and that will continue to be the case for 2021.

But there are some areas of the country where penalties still apply if a person is uninsured and not eligible for an exemption.

As of 2021, there are penalties for being uninsured in Massachusetts, New Jersey, California, Rhode Island, and the District of Columbia.

A husband and wife reviewing bills
Portra Images / Digital Vision / Getty Images

More than a decade after it was enacted, most parts of the Affordable Care Act (ACA) (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 penalty, was always an unpopular provision of the law. The mandate went into effect in 2014, requiring almost all Americans to maintain health insurance coverage unless they're eligible for an exemption.

From 2014 through 2018, there was a penalty assessed by the IRS on people who didn't maintain coverage and who weren't eligible for an exemption. The individual mandate itself still exists. But there is no longer a federal penalty for non-compliance.

Individual Mandate Penalty Repeal

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 Although the tax bill left the rest of the ACA intact, it repealed the individual mandate penalty, as of 2019 (other provisions of the tax bill took effect in 2018, but the individual mandate repeal was delayed by a year).

Although Congress did not repeal anything other than the mandate penalty (and later, some of the ACA's taxes), a lawsuit was soon filed by a group of GOP-led states, arguing that without the penalty, the mandate itself was unconstitutional.

They also argued that the mandate was not severable from the rest of the ACA, and so the entire ACA should be declared unconstitutional. A federal judge agreed with them in late 2018.

An appeals court panel agreed in late 2019 that the individual mandate is not constitutional, but sent the case back to the lower court for them to decide which provisions of the ACA should be overturned.

The Supreme Court agreed to take the case in 2020, and oral arguments were heard in November 2020, with a ruling from the Supreme Court expected in the spring or early summer of 2021.

State Individual Mandate Penalties

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

  • Massachusetts already had a mandate and penalty, which has been in place since 2006. The state had not been assessing the penalty on people for whom the federal penalty applied, but has started assessing the penalty again for 2019.
  • New Jersey implemented an individual mandate and an associated penalty starting in 2019.
  • The District of Columbia also implemented an individual mandate and associated penalty as of 2019.
  • Rhode Island created an individual mandate and associated penalty as of 2020.
  • California created an individual mandate and associated penalty as of 2020.

Vermont has an individual mandate as of 2020, but the state has not yet created any sort of penalty for non-compliance.

Maryland has created a program under which the state tax return asks about health insurance coverage, but instead of penalizing uninsured residents, the state is using the data in an effort to get these individuals enrolled in health coverage.

The program took effect at the start of the tax filing season in early 2020, and Maryland's exchange reported that more than 3,700 people had obtained coverage through the program by July 2020.

Most of the states with individual mandates have modeled their penalties on the federal penalty that was used in 2018, which is $695 per uninsured adult (half that amount per child), up to $2,085 per family, or 2.5% of household income above the tax filing thresholdm although there are some state-to-state variations.

Effects on Insurance Premiums

The elimination of the individual mandate penalty in 2019 contributed to higher individual market (non-group) premiums for 2019, because insurers expected that the people likely to drop their coverage after the penalty was eliminated would be healthy, whereas sick people will tend to keep their coverage regardless of whether there's a penalty for being uninsured.

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 rate filings for 2019 plans, average premiums would have decreased for 2019 if the individual mandate penalty had remained in place (instead, there was a small average increase in rates).

The primary reason average premiums increased instead of decreasing for 2019 was the elimination of the individual mandate penalty, along with the Trump administration's efforts to expand access to short-term health plans and association health plans.

Those plans 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. Note that although average benchmark premiums decreased slightly in 2019, overall average premiums did increase that year.

But because the ACA's premium subsidies adjust to keep coverage affordable even when premiums increase, the majority of people who buy health plans in the exchanges have continued to do so.

Although there has been a drop in enrollment over the last few years, it's been very modest: 11.75 million enrollees in 2018, dropping to 11.44 million in 2019, and then dropping only slightly in 2020, to 11.41 million.

Enrollment in full-price plans, however—including everyone who purchases coverage outside the exchanges—has dropped much more significantly over the last few years.

A Word From Verywell

The ACA's individual mandate penalty was never popular, but premiums for individual market health insurance are higher now that it has been eliminated, since coverage continues to be guaranteed-issue.

Overall rate changes have been very modest over the last few years, but rates would have been lower in 2019 if the individual mandate had not been eliminated, and that continues to be baked into the rates that insurers use in subsequent years).

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).

But as we've seen in the years since the individual mandate penalty was eliminated, enrollment in plans through the exchanges has remained quite steady, thanks to the ACA's premium subsidies, combined with limited enrollment opportunities (i.e., you cannot just purchase coverage whenever you like; it has to be during open enrollment or a special enrollment period; this applies outside the exchanges as well).

As of 2020 and future years, four states and DC are imposing financial penalties on uninsured residents. In most of the country, however, there is no longer a penalty for being without health insurance.

But it's still wise to have health insurance. Not having coverage means that health care for a serious ailment could be unaffordable or completely inaccessible.

And it is still 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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