The individual shared responsibility provision lies at the heart of the Affordable Care Act—the 2010 health care law sometimes referred to as Obamacare. This is the provision that requires Americans to have health insurance coverage and that imposes a tax penalty on those who choose to go uninsured.
Purpose of the provision
The Affordable Care Act prohibits health insurers from denying people coverage based on their medical history—for example, because they have a pre-existing condition or a family history of a particular ailment. However, insurers and lawmakers feared that this would produce a situation in which many people wouldn't buy health insurance at all—until they got sick.
But to stay in business, a health insurance company needs to collect more money in premiums than it pays out in benefits, and that means healthy people have to buy insurance, too. That's where the individual shared responsibility provision comes in.
Under the ACA, the government, insurance companies, employers and individuals all share responsibility for keeping health coverage available and affordable. The individual shared responsibility provision outlines individuals' role in this. In short, it says you must either have basic health insurance, receive an exemption or pay a penalty. The law refers to this penalty as a "shared responsibility payment;" the Supreme Court has ruled that the penalty is a federal tax.
Avoiding the penalty
You avoid the penalty if you have health insurance that provides what the law calls "minimum essential coverage." This includes nearly all employer-provided health plans, as well as coverage provided through government programs such as Medicare, Medicaid, veterans' health benefits and military Tricare plans. Coverage purchased through online health-care exchanges also qualifies.
If in doubt, ask your plan provider whether your coverage qualifies. If you don't have coverage, you can also avoid the penalty if you qualify for an exemption. Exempt groups include:
- Certain low-income people
- Incarcerated individuals
- Members of federally-recognized Native American tribes
- Undocumented immigrants
- Americans who are outside the country, and those whose religious beliefs prohibit them from accepting insurance benefits
- Individuals who can demonstrate hardship that prevents you from getting coverage
Paying the penalty
The penalty you pay for not having health coverage is either a dollar amount or a percentage of family income, whichever is 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 and beyond, 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 are to rise with inflation.
Pro-rating the penalty
If you go uninsured for only part of a year, you must pay only a partial penalty, which is pro-rated for the amount of time you were without coverage. Say your penalty comes to $1,380, and you were uninsured for five months out of the year. Your penalty would be $575—five-12ths of $1,380. No penalty applies for uninsured periods of less than three months.
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