In 2018, the federal government repealed its individual mandate penalty for lack of health insurance, though some states still enforce laws mandating coverage or face fines.
At present, five states (California, Connecticut, Massachusetts, New Jersey and Vermont), plus the District of Columbia require residents to have health insurance or face penalties when filing taxes. Each state imposes different fines.
Federal penalty
Under the Affordable Care Act (ACA), individuals were subject to a penalty if they did not possess health insurance, calculated based on your income and number of months you were uninsured. The penalty was collected via federal taxes, with your taxes reflecting it as part of your individual shared responsibility payment; its size was reduced under Tax Cuts and Jobs Act in 2018 but certain states continue to assess penalties for lack of coverage.
The Affordable Care Act’s mandate penalty was designed to incentivize enrolling in health plans, thus lowering overall healthcare costs. It was also used as an equitable access guarantee, disincentivising insurers from leaving or increasing premiums in high-risk pools; and funding subsidies for lower income individuals.
As well as the individual mandate, the Affordable Care Act included several other requirements designed to encourage insurance participation. One such regulation was the Community Rating Requirement which prohibited insurers from discriminating based on people’s age or gender; another regulation allowed for guaranteed issue policies regardless of applicants’ medical histories.
The Affordable Care Act included rules to promote transparency in the marketplace by mandating that insurance companies disclose pricing information for all health plans they sell, making it easier for consumers to compare costs and benefits between policies. It also increased minimum coverage requirements to include essential benefits as well as out-of-pocket spending caps for each health plan sold under its protection.
While the Affordable Care Act’s mandate was effective at encouraging consumers to obtain insurance, it wasn’t foolproof. Consumers may have been swayed by nonfinancial factors that are difficult to measure such as compliance and belief about enforcement.9 Saltzman estimated these nonfinancial influences resulted in a taste for compliance of approximately $67 per month among low-income populations.
State penalty
Individual Mandate penalties were at the core of the Affordable Care Act (ACA). Prior to 2019, they required nearly everyone who could afford health insurance to keep it, or face a penalty when filing taxes based on income. There were exemptions available; further details can be found below.
Although the federal Individual Mandate penalty was repealed in 2018, many states continue to assess penalties for not having health coverage, typically calculated according to an individual’s income or duration without coverage. These fees are collected when filing state tax returns; according to CDC data, an average state penalty for not having insurance in 2019 averaged around $369 – this may differ depending on which state it applies in.
Most penalties are levied against families whose income falls below the filing requirement for taxes, for instance a family of four with an income of $16,400 can expect to pay $772 annually as state penalties tend to be more stringent than federal government ones.
Some states levy additional taxes on individuals who go without health coverage, like Massachusetts which levies an extra 3.5% tax for those not covered and failing to qualify for exemption. This figure comes in addition to any individual mandate penalties calculated using formulae based on income.
The Tax Cuts and Jobs Act of 2017 eliminated the federal individual mandate penalty starting in 2019. However, this law did not alter other aspects of the Affordable Care Act (ACA), such as guaranteed issue coverage for all applicants regardless of preexisting conditions, premium tax credits to make health insurance more affordable, removal of annual and lifetime benefit maximums, or expansion of Medicaid eligibility. As such, the Affordable Care Act remains law in most states even those which have repealed individual mandates; however, some of these states are considering alternative approaches that may impose state-level penalties and this change must be carefully evaluated before being implemented into state requirements.
Tax penalty
Affordable Care Act (ACA) made health coverage mandatory, and assessed penalties when people filed their federal taxes. Individuals without health coverage or qualifying exemptions paid a monthly fee based on income for every month uninsured – known as individual responsibility payments (IRP). With the passing of Tax Cuts and Jobs Act in 2017 however, this mandate was repealed; however states such as New Jersey, Connecticut Vermont California all still maintain individual mandates with associated penalties that must be collected when residents file state returns.
The tax penalty was determined by several factors, including household size and annual income; as with income, higher earnings led to greater potential penalties. In addition, it depended on how many months during which no uncovered bills had been filed as well as whether an individual experienced temporary unemployment or had their employer change plans during that year.
Penalties were also determined based on the age of an individual’s family members who were not covered. Young children typically received lower penalties than adults. Furthermore, this penalty cap of 300% of the flat fee ensured that penalties did not become too excessive.
Individuals could circumvent paying penalties in some instances by enrolling in limited-benefits coverage such as Medicaid Excessive Income Program coverage for medically needy individuals; line-of-duty coverage in uniformed services facilities; or Medicaid solely related to family planning, tuberculosis, pregnancy and emergency medical conditions – however the IRS cautioned that this form of limited benefits coverage may no longer fulfill their individual mandate for future years.
As of 2024, five states still impose health insurance mandates with associated taxes: Massachusetts, Rhode Island, California, Vermont and New Jersey. Residents in these states must have health coverage or face penalties when filing state taxes – this information can be found on their state marketplace’s official website.
Insurance penalty
The Individual Mandate penalty has been removed by the Tax Cuts and Jobs Act of 2017. However, certain states still require their residents to have health insurance or pay a fee; The District of Columbia for instance still mandates coverage or file a shared responsibility payment with their taxes each year; fees depend on your income as well as months without coverage – with higher penalties applicable to households with higher incomes or those who missed open enrollment periods; To calculate penalties using an estimate tool from IRS Individual Shared Responsibility Payment Estimator is the easiest way.
Before the repeal of the ACA Individual Mandate penalty, its calculation could either take the form of a flat fee or percentage of household income. Annual flat fees were limited to 300% of annual penalty limits while income-based penalties could go no higher than 2.5% above certain thresholds – these caps were intended to ensure that individuals could access healthcare while not unfairly penalizing lower-income households.
The IRS provided several exemptions from the individual mandate penalty, such as financial hardship, religious beliefs, membership in recognized healthcare sharing ministries or being in prison. Some exemptions drastically reduced or even completely removed penalties; the exact amount depends on your state of residence and whether or not an exemption applies.
Massachusetts applies an individual mandate penalty only if you cannot purchase an Affordable Care Act-compliant health plan within your income bracket’s specified affordable range. A cost estimate for qualifying plans is published each year along with an affordability schedule; this range adjusts annually in response to changes in medical care expenses and inflation rates.
Not all states impose Individual Mandate penalties, however. Instead, many impose their own state penalties for failing to have Affordable Care Act-compliant health insurance plans – penalties similar to the Individual Mandate penalty in that they encourage people to enroll in marketplace plans or pay fees; penalties can often exceed the cost of providing coverage under an ACA plan.