Key points: Obamacare’s individual mandate penalty
- State penalties: Massachusetts, Washington, DC and New Jersey will have a penalties in 2019. Vermont implement a penalty in 2020.
- 4 million tax filers were subject to a penalty for being uninsured in 2016
- Average penalty = $667 in the first half of the 2017 tax filing season
- Here’s an overview of how the penalty works
- Here’s how the penalty is calculated
- Exemptions are more common than penalties (New exemptions became available in 2018.)
- The tax bill repealed the penalty effective 2019, but it still applies if you were uninsured in 2018.
The individual mandate penalty in 2018 and 2019
The ACA penalty for being uninsured still applied in 2018. There won’t be a federal penalty for people who are uninsured in 2019 and beyond, but penalties for people who were uninsured in 2018 will be assessed on tax returns filed in 2019, and some states will assess their own penalties in 2019 and beyond.
The Trump Administration made it easier for Americans to get hardship exemptions from the individual mandate. Here’s where we’ve explained more about that, and about exemptions in general. Although these exemptions won’t be necessary anymore after the end of 2019 to avoid a federal penalty, hardship exemptions will still be necessary for people age 30 and older who wish to purchase catastrophic health insurance.
Once the ACA’s individual mandate penalty is eliminated after the end of 2018, some states will replace it with their own state-based individual mandate and penalty for non-compliance. Massachusetts has enforced an individual mandate since 2006, and it will remain in effect in 2019 and beyond. New Jersey and the District of Columbia will have their own mandates and penalties starting in 2019. Vermont also enacted legislation in 2018 to create an individual mandate, but it won’t take effect until 2020.
Some states will impose a penalty on residents who are uninsured
Although the federal individual mandate penalty will be $0 for those who are uninsured in 2019 and beyond, some states are stepping up to implement their own individual mandates and associated penalties. Others may follow suit in future years, but here’s the state-based individual mandate situation for now:
- Massachusetts implemented an individual mandate in 2006, and it’s remained in effect ever since. The state has not double-penalized people while the federal mandate penalty was in effect, but starting in 2019 (for tax returns that will be filed in 2020), the state will go back to assessing 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 that the person could have purchased. There’s 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 premium for the lowest-cost ConnectorCare plan, and if your income is over 300 percent of the poverty level, your penalty is 50 percent of the cost of the lowest-cost bronze plan available through the Massachusetts Health Connector.
- New Jersey has implemented an individual mandate, effective in 2019, with a penalty modeled on the ACA’s penalty. The maximum penalty will be based on the average cost of a bronze plan in New Jersey.
- The City Council in the District of Columbia approved an individual mandate, with a penalty modeled on the ACA’s penalty. The measure was signed into law by Mayor Muriel Bowser in September 2018, and will take effect in January 2019. The maximum penalty will be based on the average cost of a bronze plan in DC.
- Vermont has enacted legislation to create an individual mandate, but it won’t take effect until 2020 and the details of the penalty have not yet been specified.
Several other states considered individual mandates during the 2018 legislative session, but did not enact legislation. Rhode Island convened a market stability working group that has recommended a state-based individual mandate, and lawmakers will likely consider it during the 2019 legislative session.
Everything you need to know about the individual mandate penalty
Although the ACA included provisions to make it easier to buy health insurance – including Medicaid expansion, premium subsidies, and guaranteed-issue coverage – it also included an individual mandate that requires Americans to purchase health coverage or face a tax penalty.
And although the GOP tax bill that was signed into law in late 2017 does repeal the individual mandate penalty, the repeal doesn’t take effect until 2019. (See Part VIII, Section 11081 of the text of the Tax Cuts and Jobs Act.) So people who were uninsured in 2017 had to pay a penalty when they filed their taxes in early 2018, and people who were uninsured in 2018 will have to pay a penalty when they file their taxes in early 2019 (unless they’re eligible for an exemption).
The individual mandate penalty helps to keep premiums lower than they would otherwise be, despite the fact that the ACA requires insurers to provide coverage for pre-existing conditions. (There was no penalty back when insurers were allowed to reject applicants with pre-existing conditions.) The Congressional Budget Office has estimated that premiums in the individual market will be 10 percent higher once the mandate penalty is eliminated than they would have been with the penalty. And most of the rate filings for 2019 included a rate increase related to the elimination of the penalty.
The individual mandate is also the least-popular consumer-facing provision of the ACA. Most Americans have health insurance, though, and don’t need to worry about the penalty for being uninsured.
But how much is the ACA’s individual mandate penalty, and who has to pay it? Despite the ACA’s gains in reducing the uninsured rate, there are still millions of Americans who don’t have coverage, for a variety of reasons. Some are temporarily uninsured, while others face a more permanent lack of insurance. And some are currently insured but facing the possibility of being uninsured in the future.
So let’s take a look at how the penalty works, why it was included in the ACA, how many people it affects each year, and how much it costs.
Must you pay?
Use our calculator to see if your family may be subject to a penalty for not having health insurance. But understand that even if you’re uninsured, there’s a good chance that you might be eligible for an exemption from the penalty, especially now that the criteria for getting a hardship exemption has been expanded by the Trump Administration.
If, for whatever reason, you decide not to purchase coverage, you can use the calculator on this page to determine the size of the penalty you would pay. (We explain how our calculator works in the box at the bottom of this page.)
Uninsured tax filers more likely to get an exemption than a penalty
Although there were still 33 million uninsured people in the US in 2014, the IRS reported that just 7.9 million tax filers were subject to the penalty in 2014 (out of more than 138 million returns). According to IRS data, 12 million filers qualified for an exemption.
The number of filers subject to the ACA’s penalty was lower for 2015 (on returns that were filed in 2016), as overall enrollment in health insurance plans had 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 tax filers — claimed an exemption for the 2015 tax year. For 2016, the IRS reported that 10.7 tax filers had claimed exemptions by April 27, 2017, and that only 4 million 2016 tax returns had included a penalty at that point.
A full list of exemptions and how to claim them is available here, including a summary of how the Trump Administration has made it easier for people to claim hardship exemptions (again, hardship exemptions will continue to be important in 2019 and beyond, as they’re necessary for people age 30 and older to be able to purchase catastrophic health insurance plans). One of the exemptions applies to people who experience a single short gap in coverage during the year, with the gap being less than three months in duration. That exemption gets a lot of questions, so we’ve explained it in more detail here.
Most Americans aren’t affected by the penalty
As noted above, only 4 million tax returns for 2016 included the ACA’s individual mandate penalty (as of late April, 2017; people who got a tax filing extension hadn’t yet filed by that point, so the total number of filers who owed a penalty likely ended up higher than 4 million). The vast majority of tax filers had health insurance, and even among those who didn’t, penalty exemptions were more common than penalty assessments.
Most Americans already get health insurance either from an employer or from the government (Medicaid, Medicare, VA); they don’t need to worry about the penalty, because employer-sponsored and government-sponsored health insurance count as minimum essential coverage.
If you still have pre-2014 individual market coverage and don’t qualify for a premium subsidy on a new plan, you may still be able to keep your existing plan throughout 2019: If you have a grandfathered plan, you can keep it as long as your carrier is still allowing it to renew and remain in force. If you have a grandmothered plan that was allowed to renew again for 2019, you can keep your existing coverage. In both cases, you’re not subject to the penalty, since grandmothered and grandfathered plans are considered minimum essential coverage, despite not being compliant with the ACA.
People who enroll in coverage through health care sharing ministries are exempt from the ACA’s penalty. The coverage is not as robust or regulated as it would be on an ACA-compliant plan, and health care sharing ministries are not considered minimum essential coverage. But people with sharing ministry coverage are eligible for one of the exemptions under the ACA.
You also have the option to purchase any of the individual market major medical plans available on or off-exchange in your area in order to avoid the ACA’s penalty. Keep in mind that plans that aren’t considered major medical coverage are not subject to the ACA’s regulations, and do not count as minimum essential coverage, meaning you’ll be subject to the penalty if you rely on something like a short-term plan and are not otherwise exempt from the penalty. Things like accident supplements and prescription discount plans may be beneficial, but they do not fulfill the requirement to maintain health insurance.
Although the premium for a new plan will be higher than your old, non-ACA-compliant plan if you’re not eligible for premium subsidies (but quite possibly lower if you are eligible for subsidies), your coverage will likely be more comprehensive thanks to the ACA’s consumer protections and mandated essential health benefits.
How stiff will your penalty be? If you have a fairly high income, the maximum penalty rose sharply in 2017 and again for 2018.
The IRS reported that for tax filers subject to the penalty in 2014, the average penalty amount was around $210. That increased substantially for 2015, when the average penalty was around $470. The IRS published preliminary data showing penalty amounts on 2016 tax returns filed by March 2, 2017. At that point, 1.8 million returns had been filed that included a penalty, and the total penalty amount was $1.2 billion — an average of about $667 per filer who owed a penalty.
Although the average penalties are in the hundreds of dollars, the ACA’s individual mandate penalty is a progressive tax: if a family earning $500,000 decided not to join the rest of us in the insurance pool, they could owe a penalty of more than $16,000 for 2017. But to be clear, the vast majority of very high-income families do have health insurance.
Today, the median net family income in the United States is roughly $56,500 (half of U.S. families earn less; half earn more.) For 2018, the penalty for a middle-income family of four earning $60,000 would be $2,085 (the flat rate penalty would be used, because it’s larger than the percentage of income penalty; see details below, under “how the penalty works”). This is far less than the penalty a more affluent family would pay based on a percentage of their income.
The penalty can never exceed the national average cost for a bronze plan, though. The penalty caps are readjusted annually to reflect changes in the average cost of a bronze plan:
- The IRS announced in Revenue Procedure 2015-15 that the maximum 2015 penalty was $2,484 for a single individual and $12,420 for a family of five or more (both slightly higher than the maximum penalty amounts for 2014).
- For 2016, Revenue Procedure 2016-43 increased the maximum penalty to $2,676 for a single individual, and $13,380 for a family of five or more, if they were uninsured in 2016.
- For 2017, Revenue Procedure 2017-48 increased the maximum penalty to $3,264 for a single individual, and $16,320 for a family of five or more. The significant rate increases that we saw for 2017 (roughly 25 percent) mean that the average bronze plan was quite a bit more expensive in 2017 than it was in 2016. And that means that the maximum penalty was also quite a bit higher.
- Rates increased considerably again for 2018, although the bulk of the rate increase was on silver plans (due to the elimination of federal reimbursement for cost-sharing reductions). According to Revenue Procedure 2018-43, the national average cost of a bronze plan increased to $3,396 in 2018 for a single individual and $16,980 for a family of five or more. This is the last year that the IRS will have to calculate the national average cost of a bronze plan, since the federal individual mandate penalty will no longer apply as of 2019. But New Jersey and DC will both have individual mandate penalties as of 2019 that will have maximum penalty amounts based on the state/district-wide average cost of a bronze plan.
GOP tax bill repeals the penalty in 2019, but you’ll still be penalized for being uninsured in 2018
Millions of Americans have enrolled in ACA-compliant health plans over the last four years, and the uninsured rate is far lower than it was in 2013, before the bulk of the ACA’s provisions took effect. After reaching an all-time low in 2016, however, the uninsured rate started to creep back up in 2017, with 11.7 percent of the population uninsured in the second quarter of the year, up from 10.9 percent in the second half of 2016. And the loss of coverage trend appears to be intensifying in 2018.
Under the Trump Administration, there has been a widespread belief that the individual mandate is no longer being enforced, which could be part of what’s driving the uninsured rate back up again (unsubsidized premiums were also sharply higher in 2017 and 2018, which is also likely a factor for people who don’t qualify for premium subsidies).
However, the individual mandate penalty is still in place throughout 2018, and Tim Jost reported at Health Affairs that it was indeed still being enforced in 2017.
The mandate penalty will be eliminated as a result of the Tax Cuts and Jobs Act (signed into law in December 2017), but that provision of the bill only applies to months after December 31, 2018. That means there is still a penalty for being uninsured in 2018, which will be assessed on tax returns that are filed in early 2019.
There are a variety of reasons that nearly 12 percent of the population is uninsured. Some are in the Medicaid coverage gap, some are undocumented immigrants, some are impacted by the family glitch (in all of those cases, exemptions from the individual mandate are available).
But some folks simply do not want to purchase coverage, or disagree with the ACA in terms of what they consider “affordable.” If you’re among them, one of your concerns will be whether you’ll be subject to a tax that’s built into the law – and if you are, what penalty you might expect to pay.
In the early days and weeks after Donald Trump won the presidential election, the expectation was that Republicans in Congress would finally be able to repeal some of the major provisions of the ACA; the individual mandate penalty was generally at the top of their list of things to eliminate. Ultimately, that was the only aspect of the ACA that Republican lawmakers succeeded in repealing during 2017, and the tax bill calls for the elimination of the mandate penalty starting in 2019, as opposed to the retroactive penalty repeal they had tried (unsuccessfully) to implement earlier in 2017. If the individual mandate had been repealed with a retroactive effective date, the penalty would have disappeared for 2017, and the IRS would have had to issue refund checks to people who paid the penalty for being uninsured in 2016.
The Congressional Budget Office (CBO) estimated that if the retroactive repeal legislation had passed, individual market premiums would have been 15 to 20 percent higher in 2018 (compared with what they would otherwise have been in 2018, not compared with what they were in 2017), mainly due to the elimination of the penalty and the impact that would have had on the risk pool: Healthy people would have been more likely to drop their coverage, while sick people would have retained coverage.
But that did not come to pass, and the penalty remained in effect for 2018. However, the GOP tax reform bill that was enacted in late 2017 does away with the individual mandate penalty starting in 2019. That has driven premiums in the individual market higher than they would otherwise have been for 2019, and that will continue to be the case in future years. The Congressional Budget Office estimates that starting in 2019, premiums would increase by an additional 10 percent each year, in addition to the increases that would have applied if the individual mandate penalty had remained in place. Those increases are evident in the rates that insurers filed (and that were approved by insurance regulators) for 2019.
Although the CBO projects that the individual market will remain “stable in almost all areas of the country” after the mandate penalty is repealed, there could be some areas that do not remain stable in future years. That’s an issue that would have to be dealt with if it comes to pass, but the ACA’s premium subsidies (which will grow to keep pace with the increasing premiums) are expected to be sufficient to keep enough people in the individual market that even without the mandate, the market will generally remain stable. It’s also noteworthy that insurers have joined the exchanges in many states for 2019 — a reversal of the insurer exit trends that we saw for 2017 and 2018, and a sign of market stability, despite the impending elimination of the mandate penalty.
You still have to answer the question on your tax return about whether you had coverage in 2018
In early 2017, following Trump’s Executive Order directing federal agencies to be as lenient as possible in their enforcement of the ACA, the IRS published a statement indicating that they would continue to accept “silent returns” for 2016 (ie, tax returns with the question about whether or not the filer had health insurance left blank).
This was the same protocol that was followed for 2014 and 2015 returns, but prior to Trump’s Executive Order, the IRS had planned to reject 2016 returns that didn’t answer the question one way or the other. Their change in course was a result of the Executive Order, but all it did was maintain the status quo that had existed for the previous two years. Nothing else changed, and everything about penalty enforcement was still the same as it was in previous years (the penalty is higher than it was in prior years, but enforcement is unchanged).
But starting with the 2018 tax filing season (for 2017 returns), the IRS clarified that they would no longer accept “silent” returns. For the first time, tax filers were required to indicate on their tax return whether they had health insurance during the previous year, and leaving the question blank was no longer an option.
How the penalty works
Your individual mandate tax is the greater of either 1) a flat-dollar amount based on the number of uninsured people in your household; or 2) a percentage of your income (up to the national average cost of a Bronze plan , as determined by the IRS and adjusted annually to reflect changes in premiums).
This means wealthier households will wind up using the second formula, and may be impacted by the upper cap on the penalty. For example: for 2017, an individual earning less than $37,000 would pay just $695 (flat-dollar calculation) while an individual earning $200,000 would pay a penalty equal to the national average cost of a bronze plan ($3,396 for 2018). This is because 2.5% of his income above the tax filing threshold would work out to about $4,740, which is higher than the national average cost of a bronze plan. The IRS publishes the national average cost of a bronze plan in August each year; that amount is used to calculate penalty amounts when returns are filed the following year.
1) Flat-dollar amount
In 2014, the flat-dollar penalty was $95 per uncovered adult (it climbed to $325 in 2015, and $695 in 2016) plus half that amount for each uninsured child under age 18. Your total household penalty is capped at three times the adult rate, no matter how many children you have.
In 2014, that was $285 ($975 in 2015, and $2085 in 2016). Starting in 2017, the flat-rate penalty is subject to annual adjustment for inflation. But for 2017, the IRS confirmed that there was no inflation adjustment, so the flat-rate penalty continued to be $695 per adult in 2017, with a maximum of $2,085 per family. And for 2018, that is once again the case, as the IRS confirmed that the flat rate penalty would remain unchanged in 2018. After 2018, there will no longer be a penalty imposed by the IRS, although New Jersey, Massachusetts, and DC will impost their own penalties, and Vermont will join them in 2020.
2) Percentage of income
In 2014, the penalty was 1 percent. It rose to 2 percent in 2015, and to 2.5 percent for 2016 and beyond.
The penalty is capped at the average cost of a Bronze plan, which for 2018 is $3,396 for an individual and $16,980 for a family of five or more (those maximum amounts are prorated monthly for tax filers who were uninsured for only part of the year). The percentage of income penalty is calculated based on the household’s income above the tax filing threshold.
But if you use the calculator above, you don’t have to look up your filing threshold. Just enter your adjusted gross income and our calculator will do the rest. For most people, this will simply be adjusted gross income from your tax return. But if you have non-taxable Social Security benefits, tax-exempt interest, or foreign earned income and housing expenses for Americans living abroad, you’ll need to add those amount to your AGI from your 1040 and put the total amount into the penalty calculator. Be sure to include income from any dependents who are required to file a tax return.