The Individual Mandate

The individual mandate has been upheld as a tax, which is one of the most important elements of health reform. The law requires all Americans, with a few exceptions, to purchase health insurance or apply for public benefits if they cannot afford a private plan. Those who decide against having coverage without a proper exemption will be faced with a penalty fee. This portion of the Affordable Care Act will become effective in 2014, the first year that fines will be issued.

Penalties are going to start small, and gradually increase as years progress.  In 2014, the penalty will be as low as $95 per year for an adult and $47.50 per child, or 1 percent of income, depending which is higher. By 2016, the individual penalty will elevate to $695 per adult and $347.50 per child, or 2.5 percent of income per year, whichever is higher, unless their income meets a poverty test or they are on Medicaid. Because the mandate is now considered a tax, the IRS will collect any penalty charges.

The penalty is pro-rated by the number of months a person is without coverage, though there is no penalty for a break in coverage of under 3 months in a year. An individual penalty can not exceed the national average premium for Bronze level coverage in a state health insurance Exchange. After 2016, the penalty will increase each year based on a person’s cost of living.


Exemptions from the Individual Mandate

There are several ways to avoid this law and being charged a penalty, though they are specific to lifestyle choices, background, income, and other factors. The federal government has decided the following reasons are acceptable for waiving the individual penalty if a person does not have health insurance.

  • Belonging to a religion that opposes health insurance
  • Undocumented immigrants
  • Individuals who are incarcerated
  • Members of an Indian tribe
  • Those with a family income under the threshold requiring you to file a tax return
  • Health insurance would cost more than 8 percent of your total income, after considering employer contributions or tax credits



Acceptable Forms of Coverage

Otherwise, in order to not be taxed, every American must purchase some form of health insurance or apply for a public plan if their income is low enough. If you do not fit into one of the groups above and do not wish to pay the penalty, there are several ways to obtain coverage. Being insured for a full year through a combination of sources or only one will be considered as having full insurance and not require you to pay a penalty. The following sources are counted as viable health insurance:

  • Medicaid or the Children’s Health Insurance Program (CHIP)
  • Medicare
  • TRICARE (for service members, retirees, and their families)
  • Veteran’s health program
  • Employer-sponsored health plans
  • Individual health insurance from a private insurer
  • Individual health insurance from an Exchange, at least at the Bronze level
  • Grandfathered health plans, purchased prior to the health reform law


Potential Outcome

Many are concerned that upon hearing the penalty charges, it will be much more appealing for individuals to stay uninsured and simply pay the annual cost. It is much less expensive than health insurance coverage, and it will not necessarily prevent people from waiting until they become sick to purchase health insurance. Once the individual mandate is in effect, there will also be no denial of coverage to people who are already experiencing symptoms of a condition.

While it seems a bit harsh to require everyone to buy health care coverage or else pay yet another federal tax throughout the year, the amounts, initially could be worse. Surely, as time goes on and the amounts increase it will be less appealing to pay the fine, but it will remain below the cost of paying for one year of coverage. Comprehensive, quality health insurance will certainly cost more than $695 per year.

Also, there is the possibility that individuals refuse to pay the mandatory tax. If those who do not purchase a health plan decide against paying the penalty, where would that lead? As it turns out, the government cannot force you to pay, and unlike if you do not pay your taxes, they cannot send you to jail or place a lien on your home or property. Your tax refund is at risk of being reduced, however, if you do not receive one, there is nothing to worry about.

Despite the concern that many will choose to opt out of health coverage, many analysts suggest that it will work. This is due to the fact that Americans seem to want health insurance, and prefer to do so before they become sick. With the health insurance subsidies in place, they are getting help to purchase coverage. Another fact in the mandate’s favor is that Americans tend towards compliance and do not stray from the rules too often. Massachusetts’ already established individual mandate has already shown despite low penalties, residents have been extremely agreeable and follow the law.


Individual Mandate Clarification

If there is still any lingering confusion regarding this law, here are the main issues being misconstrued about the individual mandate. Read the bullet-points above if you need more assistance, but the most common idea is that everyone must buy health insurance or pay a tax. The idea is to be insured.

Purchasing health insurance coverage does not apply to those who are on group health plans through their employer or those who receive government benefits through Medicaid or Medicare. According to the Congressional Budget Office, roughly 250 million people meet the criteria for “insured.” This leaves nearly 7 million Americans who will need to obtain health insurance without qualifying for help from a subsidy.

Another key point of confusion is that people will have to purchase coverage even if they cannot afford to do so. This is not true, as there are distinct income regulations surrounding the mandate. If your income is below a certain amount, which is up to 400 percent of the Federal Poverty Level (currently $92,000 for a family of four), you may qualify for a subsidy to help pay for insurance.

As mentioned above, others do not have to pay a penalty tax based on hardship grounds, meaning their income is not high enough to have to file taxes, which is about $9,500 for individuals and $19,000 for married couples. Those who have access to group insurance but choose not to have a plan because it would consume more than 8 percent of their total income are also exempt.

Others are also concerned that they will not be able to keep their current coverage, which is untrue. Many Americans still have grandfathered health plans and others will be able to keep their coverage purchased in the past few years, as well. There is no requirement to purchase through an Exchange simply because they have been created. Employers are able to change the health plans they offer their employees, which may end up costing more, though this has no connection to the health care law.