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.

People who don’t have health insurance must pay a penalty tax called the shared responsibility payment (also known as the individual mandate penalty) unless they're eligible for an exemption from the penalty.

Mandate Penalty Will Be $0 Starting in 2019

Under the terms of the Tax Cuts and Jobs Act that Congress enacted in late 2017, the individual mandate penalty will be eliminated starting in 2019. People who are uninsured in 2018 will still owe a penalty when they file their tax returns in early 2019, unless they're 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 will all have individual mandate penalties for 2019, and Vermont will join them in 2020.

The individual mandate itself has not been repealed, so there will technically continue to be a requirement that nearly everyone maintains health insurance. But there will no longer be a penalty for non-compliance after the end of 2018.

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.

How the Individual Mandate Works

Some people are exempt from the individual mandate, but the majority of Americans fall under its mandate and are subject to its penalty. People who remain uninsured but aren't exempt have to pay the shared responsibility payment when they file 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 $100,400 for a family of four purchasing coverage for 2019), 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 $62,750 for a family of four in 2019).

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 19 states still hadn't expanded Medicaid as of mid-2018 (Virginia will expand coverage in 2019, and Maine voters approved Medicaid expansion in the 2017 election, but the governor has been blocking the implementation and a legal battle has ensued). In 18 of those states, people with income below the poverty level are in the coverage gap, without any realistic access to health insurance. They are 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 is the penalty?

If you're uninsured and not eligible for an exemption, the penalty (as of 2018) is the GREATER OF: 

  • 2.5 percent of your taxable household income (this will remain the same in future years)
  • $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 is being eliminated altogether after the end of 2018)

The maximum penalty is the national average cost of a bronze plan. The IRS publishes the national average bronze plan rate each summer. For 2017 it was $3,264 for an individual and $16,320 for a family of five or more. This penalty would only apply to a high-income household, however, as it takes a considerable income for 2.5 percent of it to reach those levels.

How Much Is the Health Insurance Penalty for an Individual?” shows how to calculate your penalty for being uninsured. This allows you to predict what you’ll owe as your lifestyle and financial situation change. " How Much Is the Health Insurance Penalty for Families?" explains how to calculate the shared responsibility payment for a family.

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

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