no longer a federal penalty, but some states impose a penalty on residents who are uninsured
While there is no longer an individual mandate penalty, or “obamacare penalty,” at the federal level, some states have implemented their own individual mandates and associated penalties:
- massachusetts implemented an individual mandate in 2006, and it has remained in effect ever since. The state has not twice penalized people while the federally mandated penalty was in effect, but as of 2019, the state once again began imposing penalties on people who are uninsured and not exempt. the penalty in massachusetts is calculated as 50 percent of the cost of the lowest-cost plan the person could have purchased. there is no penalty if your income is up to 150 percent of the poverty level. if your income is between 150.1 and 300 percent of the poverty level, your penalty is 50 percent of the lowest-cost connectorcare plan premium, and if your income is above 300 percent of the poverty level, your penalty is 50 percent of the premium. cost of the lowest cost bronze plan available through the massachusetts health connector. The revenue generated from the sanction is used to help cover the cost of connectorcare coverage for people with incomes below 300 percent of the poverty level.
- new jersey has implemented an individual mandate, effective in 2019, with a sanction modeled on the aca sanction. The maximum penalty is based on the average cost of a bronze plan in New Jersey. the revenue generated by the sanction is used to fund the state’s new reinsurance program.
- the city council of the district of columbia approved an individual mandate, with a sanction modeled on the sanction of the aca. The measure was signed into law by Mayor Muriel Bowser in September 2018 and went into effect in January 2019. The maximum penalty is based on the average cost of a bronze plan in DC. proceeds from the penalty are used for outreach and enrollment assistance, as well as for programs that improve the availability and affordability of coverage in the district.
- california has an individual mandate beginning in 2020, with a sanction modeled on the aca sanction. Revenues from the state’s individual mandate are used to help cover the cost of the state’s new premium subsidies, which extend to higher income levels than the aca’s premium subsidies.
- rhode island has an individual mandate beginning in 2020, with a sanction modeled on the aca sanction. proceeds raised through the sanction are used to fund the state’s new reinsurance program.
- The IRS announced in the 2015-15 revenue proceeding that the 2015 maximum penalty was $2,484 for a single person and $12,420 for a family of five or more (both slightly higher than the maximum penalty amounts). fine for 2014).
- For 2016, Revenue Procedure 2016-43 increased the maximum penalty to $2,676 for a single person and $13,380 for a family of five or more, if they had no insurance in 2016.
- For 2017, Revenue Procedure 2017-48 increased the maximum fine to $3,264 for a single person and $16,320 for a family of five or more. The significant rate increases we saw in 2017 (approximately 25 percent) mean that the average bronze plan was slightly more expensive in 2017 than it was in 2016. And that means the maximum penalty was also quite a bit higher.
- rates rose sharply again for 2018, though most of the rate increase was due to silver plans (due to the elimination of federal reimbursement for cost-sharing reductions). Based on the 2018-43 revenue procedure, the national average cost of a bronze plan increased to $3,396 in 2018 for a single person and $16,980 for a family of five or more. This is the last year the IRS had to calculate the national average cost of a bronze plan, as the federal individual mandate penalty no longer applies as of 2019. But as noted above, several states have or are implementing individual mandates with maximum penalties based on the average local cost of a bronze plan.
vermont enacted legislation to create an individual mandate beginning in 2020, but lawmakers couldn’t agree on a penalty for noncompliance, so while the mandate went into effect in 2020, as of it has now been essentially toothless (same as the federal individual mandate, which is still in effect but has no penalty for non-compliance). vermont could impose a penalty during a future legislative session, but the most recent legislation the state has enacted (h.524/act63, in June 2019) requires the state to use the individual mandate information that taxpayers report on their returns to identify uninsured residents and “provide targeted outreach” to help them get affordable health coverage.
2014-2018: Everything You Need to Know About the Federal Individual Mandated Sanction
While the ECA law included provisions to make it easier to purchase health insurance, including expansion of Medicaid, premium subsidies, and guaranteed issue coverage, it also included an individual mandate requiring Americans to purchase health coverage or face a tax penalty, unless they were eligible for an exemption).
but the Republican tax bill that was signed into law in late 2017 repealed the individual mandated penalty starting in 2019 (see part viii, section 11081 of the Tax Cuts and Jobs Act text). Although the law was enacted in 2017, there was a delay of over a year before the obamacare penalty repeal took effect, and people who were uninsured in 2018, after the law was enacted, still had to pay the individual mandate penalty when they filed their tax returns in 2019.
The individual mandated penalty helped keep premiums lower than they otherwise would have been. There was no Obamacare penalty when insurers were allowed to reject applicants with pre-existing conditions, but now that coverage is guaranteed, it was important to have a mechanism in place to ensure healthy people remained in the insured pool. The individual mandate was part of that, but the ACA’s premium subsidies are likely to play an even bigger role, keeping coverage affordable for most middle-class enrollees, regardless of whether they’re healthy or not.
The Congressional Budget Office has estimated that premiums in the individual market will generally trend 10 percent higher without the individual mandate enactment than they would have been with the enactment. Unsurprisingly, most rate filings for 2019 included a rate increase related to the removal of the fine. that’s now built into the standard premiums going forward, so the higher rates apply in future years too.
The individual mandate has long been the least popular consumer-facing provision in the ACA, though most Americans already had health insurance before the ACA, and needn’t worry about the penalty for being uninsured.
It is worth noting that the removal of the individual mandate penalty is the crux of the Texas v. us (california v. texas), seeking to repeal the entire aca. the case was heard by the supreme court in November 2020 and a ruling is expected in the spring or early summer of 2021.
uninsured tax filers were more likely to get an exemption than a penalty
Although there were still 33 million uninsured people in the United States in 2014, the IRS reported that only 7.9 million taxpayers were subject to the penalty in 2014 (out of more than 138 million returns). According to IRS data, 12 million taxpayers qualified for an exemption.
The number of filers subject to the aca sanction was lower in 2015 (for returns that were filed in 2016), as overall enrollment in health insurance plans continued to grow. The IRS reported in January 2017 that 6.5 million 2015 tax returns had included individual shared responsibility payments. But far more people (12.7 million taxpayers) claimed an exemption for the 2015 tax year. For 2016, the IRS reported that 10.7 taxpayers had applied for exemptions before April 27, 2017, and that only 4 million tax returns 2016 tax bills had included a penalty at the time.
A full list of exemptions and how to claim them is available here, including a summary of how the trump administration made it easier for people to claim hardship exemptions (Hardship exemptions continue to be important in 2019 and beyond, as are required for people age 30 and older to purchase catastrophic health insurance plans).
most Americans were not affected by the sanction
as noted above, only 4 million tax returns for 2016 included the aca individual mandated penalty (as of late april 2017; people who got a tax return extension had not yet filed at that time, so the total number of filers owing a sanction likely ended up over 4 million). the vast majority of taxpayers had health insurance, and even among those who did not, penalty waivers were more common than penalty assessments.
Most Americans already get health insurance from an employer or the government (Medicaid, Medicare, Virginia); they didn’t need to worry about the penalty because employer- and government-sponsored health insurance counts as minimum essential coverage.
Individual market major medical plans available on or off the exchange are considered minimum essential coverage, as are protected plans and protected plans. And although shared health care ministries are not considered minimum essential coverage, people with shared ministry coverage were eligible for one of the exemptions under ACA.
Plans that are not considered major medical coverage are not subject to aca regulations and do not count as minimum essential coverage, meaning people were subject to the penalty if they relied on something like a short-term plan. term and not otherwise exempt from the obamacare penalty. Things like accident supplements and prescription discount plans can be beneficial, but they don’t meet the requirement to maintain health insurance.
how big were the sanctions?
The IRS reported that for tax filers subject to the penalty in 2014, the average penalty amount was about $210. that increased substantially for 2015, when the average penalty was around $470. The IRS released preliminary data showing penalty amounts on 2016 tax returns filed before March 2, 2017. At that time, 1.8 million returns that included a penalty had been filed, and the total amount of the penalty was $1.2 billion, an average of about $667 per taxpayer who owed a penalty.
Although average fines run into the hundreds of dollars, the ECA’s individual mandated penalty is a progressive tax: if a family earning $500,000 decided not to join the rest of us in the insurance group, they would have owed a fine of more than $16,000 for 2018. But to be clear, the vast majority of very high-income families have health insurance.
Today, the median net household income in the United States is about $56,500 (half of American families earn less; half earn more). -a rate penalty would have been used, because it was greater than the revenue penalty percentage; see details below under “how the penalty works”). this is much less than the fine a more affluent family would have paid based on a percentage of their income.
however, the penalty could never exceed the national average cost for a bronze plan. penalty caps are reset annually to reflect changes in the average cost of a bronze plan:
Maximum penalties rarely applied to many people, as most wealthy households were already insured.
It is no longer a health coverage question on the federal tax return (but it still is on some state returns, and Form 8962 still applies if you receive a premium subsidy)
From 2014 through 2018, the federal Form 1040 included a line where applicants had to indicate whether they had health insurance for the entire year (see the top right corner, below the spaces for Social Security numbers).
But as of 2019, the 1040 form no longer includes that question, since there is no longer a penalty for being without coverage.
but state tax returns for dc, massachusetts, new jersey, california and rhode island include a question about health coverage. Maryland’s tax return also asks about health insurance coverage, to try to connect uninsured residents with affordable coverage. Colorado’s tax return will have a similar feature starting in early 2022 (but Maryland and Colorado don’t penalize residents who don’t have health insurance).
Also, nothing has changed about the premium subsidy reconciliation on the federal tax return. People who receive a premium subsidy (or those who enroll through the exchange in a full-price plan but want to claim the subsidy at tax time) will still use Form 8962 to reconcile their subsidy. Exchanges, insurers, and employers will continue to use forms 1095-a, b, and c to report coverage details to enrollees and the irs.