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.

Federal Mandate Penalty Is $0 As of 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 were uninsured in 2019 do not owe a penalty on their tax returns filed in early 2020—as will continue to be the case in future years—unless they're in a state that imposes its own penalty. New Jersey, DC, and Massachusetts all had individual mandate penalties in 2019, and they continue to apply. Rhode Island and California implemented individual mandates as of 2020, so residents in those states will see penalties on their 2020 tax returns (filed in early 2021) if they're uninsured in 2020.

The ACA's individual mandate itself has not been repealed, so there does technically continue to be a requirement that nearly everyone maintains health insurance.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 there is no longer a federal penalty for non-compliance with the individual mandate.

[In addition to the states that have created their own individual mandates with associated penalties, Vermont has also created an individual mandate, which requires residents to have health coverage as of 2020. But Vermont has not yet created a penalty for non-compliance, so the state's individual mandate is much the same as the federal government's: It exists, but is essentially toothless.]

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 will likely eventually result in the Supreme Court once again being faced with the question of the constitutionality of the Affordable Care Act. Attorneys general from 18 Republican-led states and 2 Republican governors are suing 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 2018, ruling that the ACA should indeed be overturned once the individual mandate penalty was reduced to zero. The case was appealed, and the Trump administration has declined to defend the ACA, so that task has been taken over by 21 states who are concerned that overturning the ACA would have disastrous consequences for Americans with pre-existing medical conditions.

A panel of judges from the 5th Circuit Court of Appeals agreed with the lower court in December 2019, ruling that the individual mandate is unconstitutional. But the panel sent the case back to the lower court to specify exactly which other provisions of the ACA ought to be overturned (despite the fact that the judge had ruled a year earlier that the entire ACA should be overturned). That essentially just delays the case, leading to more uncertainty for insurers and the American public. A group of Democratic-led states asked the Supreme Court to take up the case as soon as possible, instead of waiting for it to make its way back through the lower court. The Supreme Court initially declined to do so, but is still considering the issue. So it's possible that the case could be resolved in 2020 or after.

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 about $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 15 states still hadn't expanded Medicaid as of early 2020 (Nebraska will join the list of states that have expanded Medicaid as of late 2020).

In 14 of those states (all but Wisconsin), 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.

You can learn more about the specifics of the penalty in How Much Is the Health Insurance Penalty for an Individual? and How Much Is the Health Insurance Penalty for Families?

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

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Article Sources
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