What Is the Individual Mandate for Health Care Reform?
The health care reform legislation that became law in 2010 - known officially as the Affordable Care Act and also as Obamacare - requires most Americans to have a basic level of health insurance coverage. This requirement is commonly referred to as the law's "individual mandate." The law imposes a tax penalty through 2018 on those who fail to have the required coverage.
The rationale behind the mandate
Health insurance, like other kinds of insurance, works by creating "risk pools," which are groups of policyholders. In a typical risk pool, everyone pays insurance premiums, but only some will file claims. If a health insurance risk pool is large enough and has enough healthy people paying premiums, then there will be enough money available to cover the costs of those who get sick.
The rationale behind the individual mandate is that if everyone is required to have insurance—especially healthy people—the risk pools will be broad enough to lower premiums for everyone, even those with expensive medical conditions.
Who must have coverage
Unless they're in a category of people exempt from the individual mandate, all U.S. citizens and permanent residents are required to have health insurance. Exempt groups include:
- People whose religion forbids them from having any health insurance
- People who are incarcerated
- Members of Native American tribes; undocumented immigrants
- Families whose income is so low that they are not required to file a tax return
- Individuals who would have to pay more than 8 percent of their income for insurance, after taking into account employer contributions or other subsidies
Which coverage counts
If you're required to have coverage, the next consideration is what kind of coverage you have. It has to meet the federal definition of "essential care." In general, health insurance obtained through an employer's plan qualifies as essential care. Medicare, Medicaid and the Children's Health Insurance Program also qualify as well as:
- Tricare insurance for military service members, retirees and their families
- Veterans' medical benefits
- Individual health care policies that provide a certain minimum level or benefits
- Any plan that existed before the law was enacted and has been "grandfathered in" by the federal government.
Legislation passed in late 2017 ended the penalties beginning with the 2019 tax year.
Tax penalties for lack of coverage began accruing in 2014, and they were to phase in over a three-year period. Taxpayers are penalized for lacking coverage for themselves and for their dependents. Beginning in 2019 the penalties will no longer be assessed.
The law set an annual penalty amount and then pro-rated that amount based on the number of months you were without coverage. For example, if your penalty amount was $300, and you were without coverage for eight months (two-thirds of the year), then your actual penalty would be $200. No penalty would be assessed for gaps in coverage lasting less than three months. Penalties for a year were assessed and needed to be paid with that year's income tax return.
Penalty amounts specified
The penalty you had to pay for not having health coverage was either a dollar amount or a percentage of family income, whichever was greater. For the law's first year, 2014, the law set the annual penalty at $95 per adult and $47.50 per child, up to a maximum of $285 per family—or 1 percent of family income, whichever is greater. For 2015, the penalty was set at $325 per adult and $162.50 per child, up to a maximum of $975 per family—or 2 percent of family income, whichever is greater. For 2016 through 2018, the law set the penalty at $695 per adult and $347.50 per child, up to a maximum of $2,085 for a family—or 2.5 percent of income, whichever is greater. Penalties were to rise with inflation.
Not sure if you are exempt from the from the requirement to purchase health insurance? See "Are You Exempt From Health Care Coverage?" to help determine whether you might be eligible to apply for a health care exemption.
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