What Is the Individual Mandate?

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Definition

The individual mandate—officially called the individual shared responsibility provision—requires virtually all citizens and legal residents of the United States to have health insurance.

It is part of the Affordable Care Act, and from 2014 through 2018, there was a financial penalty—assessed by the IRS—for people who didn't comply with the mandate, unless they were eligible for an exemption from the penalty.

Mandate Penalty Is $0 Starting in 2019

Under the terms of the Tax Cuts and Jobs Act that Congress enacted in late 2017, the individual mandate penalty was eliminated starting in 2019. People who were uninsured in 2018 were subject to the penalty when they filed their tax returns in early 2019, unless they were exempt.

But people who are uninsured in 2019 will not owe a penalty on their tax returns filed in early 2020, unless they're in a state that imposes its own penalty. New Jersey, DC, and Massachusetts all have individual mandate penalties in 2019. Rhode Island and California will join them in 2020 (Vermont will also have an individual mandate starting in 2020, but the state has not created a penalty for non-compliance).

The individual mandate itself has not been repealed, so there does technically continue to be a requirement that nearly everyone maintains health insurance. And the hardship exemption from the mandate is still important in terms of allowing people age 30 and older to purchase catastrophic health insurance (without a hardship exemption, catastrophic plans can only be purchased by people under the age of 30). But as of 2019, there is no longer a federal penalty for non-compliance with the individual mandate.

Background of the Individual Mandate

The individual mandate has always been a controversial part of the Affordable Care Act. While the law was being debated in Congress, and in the years after it was enacted, opponents argued that the government shouldn’t be allowed to penalize people for not buying something. Challenges to the constitutionality of the individual mandate went all the way to the Supreme Court.

The Supreme Court decided the penalty imposed by the individual mandate was actually a tax on people who go without health insurance. Since the government has the right to tax its citizens, the Supreme Court decided the individual mandate was constitutional.

It's actually this argument that has propelled Texas v. Azar through the court system, and it's a case that could potentially reach the U.S. Supreme Court. Two Republican governors and attorneys general from 18 Republican-led states have sued to overturn the ACA on the grounds that since there is no longer a tax for being uninsured, the individual mandate is no longer constitutional. And because they argue that the mandate is not severable from the rest of the ACA, the plaintiffs have called for the entire ACA to be overturned.

A federal district court judge in Texas sided with the plaintiffs in December 18, ruling that the ACA should indeed be overturned once the individual mandate penalty was reduced to zero. The case is being appealed, and nothing has changed about the ACA during the appeals process—the law remains in effect, albeit without an individual mandate penalty. The Trump administration has declined to defend the ACA, so that task has been taken over by 17 attorneys general from Democratic-led states who are concerned that overturning the ACA would have disastrous consequences for Americans with pre-existing medical conditions.

How the Individual Mandate Works

Some people are exempt from the individual mandate, but the majority of Americans fall under its mandate and were subject to a penalty for non-compliance if they were uninsured between 2014 and 2018. People who were uninsured—and who didn't qualify for an exemption—during that time frame had to pay the shared responsibility payment when they filed their federal income taxes.

In order to help people comply with the individual mandate, the Affordable Care Act (ACA) required the creation of health insurance exchanges, or marketplaces, where people can buy health insurance.

The ACA also provided for subsidies that keep premiums affordable for people with household income that doesn't exceed 400 percent of the poverty level (that's $103,000 for a family of four purchasing coverage for 2020), as well as subsidies that make out-of-pocket costs more affordable for people with household income that doesn't exceed 250 percent of the poverty level (that's $64,375 for a family of four in 2020).

The ACA also called for the expansion of Medicaid to everyone with household incomes up to 138 percent of the poverty level, in order to provide access to very low-cost health care for low-income Americans. But the Supreme Court ruled that Medicaid expansion was optional, and 16 states still hadn't expanded Medicaid as of mid-2019 (Nebraska and Idaho will join the list of states that have expanded Medicaid in 2020, although Nebraska's expansion won't take effect until late that year).

In 15 of those states, people with income below the poverty level are in the coverage gap, without any realistic access to health insurance. They were always exempt from the individual mandate penalty however, as there's a specific exemption for people who would have been eligible for Medicaid but who live in a state that hasn't expanded Medicaid.

How Many People Owe a Penalty?

In early 2016, the Internal Revenue Service reported that for the 2014 coverage year, a total of 7.9 million tax filers reported a total of $1.6 billion in shared responsibility provision penalties that averaged about $210 per tax filer.

On the other hand, there were 12.4 million tax filers who were also uninsured in 2014, but who claimed one of the exemptions and were therefore not subject to the penalty.

As more people gained health coverage in 2015, the number of people subject to the penalty declined. The IRS reported that 6.5 million people owed the penalty for being uninsured in 2015, but their penalties were considerably higher (an average of $470).

How Much Was the Penalty?

If you were uninsured and not eligible for an exemption, the penalty in 2018 was the GREATER OF: 

  • 2.5 percent of your taxable household income, OR
  • $695 per uninsured adult, plus $347.50 per uninsured child, up to a maximum of $2,085 per family (this was to be adjusted annually for inflation beginning in 2017, but the IRS announced that the inflation adjustment would be $0 for both 2017 and 2018, and the penalty was eliminated altogether after the end of 2018)

The maximum penalty was equal to the national average cost of a bronze plan. The IRS published the national average bronze plan rate each summer. For 2018, it was $3,396 for a single individual and $16,980 for a family of five or more. This penalty would only have applied to a high-income household, however, as it takes a considerable income for 2.5 percent of it to reach those levels.

Also Known As: health insurance mandate, coverage mandate, individual shared responsibility

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Article Sources

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  1. Congress.gov. H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (Tax Cuts and Jobs Act). Enacted December 2017.

  2. Keith, Katie. Health Affairs. Federal Judge Strikes Down Entire ACA; Law Remains In Effect. December 15, 2018.

  3. Musumeci, MaryBeth. Kaiser Family Foundation. Explaining Texas v. U.S.: A Guide to the 5th Circuit Appeal in the Case Challenging the ACA. July 3, 2019.

  4. Department of Health and Human Services. Assistant Secretary for Planning and Evaluation. U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs. HHS Poverty Guidelines for 2019 (used for 2020 health insurance assistance eligibility determination).

  5. Internal Revenue Service, Letter from IRS Commissioner John Koskinen to Congress, detailing preliminary data for the Affordable Care Act provisions. January 8, 2016.

  6. Koskinen, John, IRS Commissioner. Internal Revenue Service. Letter to members of Congress regarding 2016 tax filings related to Affordable Care Act provisions. January 9, 2017. 

  7. Internal Revenue Service. Revenue Procedure 2018-43.

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