What is the individual mandate?

Obamacare’s individual mandate is a penalty for people who went without qualifying health coverage before 2019

Derek Silva

Derek Silva

Published October 30, 2019

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KEY TAKEAWAYS

  • The individual mandate has been suspended and only applies for 2018 and earlier

  • You pay a penalty if you go without qualifying health coverage for a period of three months or more

  • Qualifying coverage includes work-based plans and any plan you buy through the health insurance marketplace

  • The 2018 penalty was either $695 per person ($347.50 per child under 18) or 2.5% of your household income, whichever was higher

The Affordable Care Act, also called the ACA or Obamacare, is a health care reform law that went into effect in 2010. It made many changes to what individual health insurance plans must cover and how plans are sold. Its overall goal was to get more Americans covered with affordable care.

One way to keep prices low was through the individual mandate, a tax penalty you pay if you didn’t have insurance throughout the year. When a greater number of healthy people buy plans, health insurance companies can afford to charge lower prices to each policyholder.

However, the individual mandate was indefinitely suspended, starting in 2019, as part of a recent tax reform. You only have to pay a penalty if you’re filing taxes for years between 2014 and 2018.

For those tax years, the penalty applies if you had a health coverage gap of three months or more. In 2018, the penalty was either $695 per person ($347.50 per child under 18) or 2.5% of your household income, whichever was more.

For the 2019 tax year, Massachusetts and Rhode Island still collect their own tax penalty for residents who go without insurance. The District of Columbia also has its own individual mandate.

In this article:

What is the individual mandate?

Health insurance companies can afford to cover the medical costs for individuals when there are many healthy individuals paying insurance premiums, in addition to the people who need medical care. The Affordable Care Act (Obamacare) tried to ensure that healthy (and often younger) Americans sign up for insurance through the individual mandate.

The individual mandate is a fee for not having qualifying health coverage throughout the year. The fee is officially called the Shared Responsibility Payment, but is usually called the individual mandate, penalty, fee, or fine. The federal government collects the penalty through your taxes when you file your federal tax return.

The end of the penalty has not led to higher prices so far — average premiums for 2019 plans are down slightly compared to last year — but insurers may increase prices in the future if enrollment dips further.

Who has to pay the penalty?

For tax years 2014 to 2018, almost everyone needed to have qualifying health insurance coverage to avoid paying the individual mandate. You were also required to have coverage for your dependents.

You only needed to pay the individual mandate penalty if went for a period of three months or more without qualifying health coverage. There was no penalty for coverage gaps that were less than three months long.

Because the penalty is suspended for future years, you do not need to worry about it unless you have back taxes. Back taxes are any taxes from previous years that you haven’t paid in full. When you don't file your tax return on time, you have to pay a late fee plus interest.

(Read more about how to file your taxes in 2019.)

How much was the individual mandate penalty?

The individual mandate is set as an annual penalty. If you went the whole year without qualifying health insurance, you have to pay the full penalty. The penalty amount is prorated if you went for only part of the year without coverage. For example, if your penalty was $700 and you went half of the year without coverage, you would owe half of the penalty, or $350.

The penalty amount for 2018 was either a per-person fee of $695 ($347.50 per child under 18) or 2.5% of your annual household income, depending which is higher.

If you pay the per-person fee, the maximum penalty is $2,085 per family. When paying as a percentage of income, the maximum penalty is equal to the national average annual premium of a Bronze plan sold through the Marketplace.

Any penalty you have to pay will be collected as part of your federal income tax return.

People who are exempt from the individual mandate

There are only a few groups of people who are exempt and don’t need to have qualifying health coverage:

  • Anyone whose religion forbids them from having any health insurance
  • Incarcerated individuals
  • Members of Native American tribes
  • Undocumented immigrants
  • Individuals and families who don’t need to file a tax return because their income is too low
  • Anyone who would have to pay more than 8.05% of their income for insurance premiums (after factoring in employer contributions or other premium subsidies)

You may also qualify for an exemption if you suffered a personal or financial hardship over the previous year. You can learn more about getting an exemption through your marketplace. You may need to fill out and mail an application to the marketplace.

What counts as qualifying health coverage?

As long as you had qualifying coverage, you didn’t have to worry about the individual mandate. This is less important starting in 2019, though, because the individual mandate isn’t in effect. Qualifying health coverage may also be referred to as minimum essential coverage.

The following are examples of qualifying health coverage:

  • All health plans you buy through your state’s or the federal health insurance marketplace
  • Some individual health plans bought outside the marketplace, if they meet the standards for qualified health plans
  • Group health insurance and job-based health plans, including COBRA coverage
  • Medicare Part A or Part C (Part B coverage by itself does not qualify)
  • Medicaid coverage, except for limited coverage plans
  • The Children’s Health Insurance Program (CHIP)
  • Insurance coverage you get through a parent’s plan
  • Most student health plans (check with your school first)
  • A “grandfathered” individual insurance plan that you’ve had since March 23, 2010, or earlier
  • Some types of veterans health coverage through the Department of Veterans Affairs
  • Most TRICARE plans
  • Refugee Medical Assistance

If you need help signing up for a new plan, check our guide on how to sign up for health insurance.

Plans that do not count as qualifying coverage

Plans that only cover a handful of health services don’t qualify. You may need to pay the individual mandate if you only had these products in 2018 or earlier. Common health products that don’t count as qualifying coverage include

Again, anyone can use these plans and products, but they do not count as qualifying health coverage on their own. You still need to have a health plan that covers other medical benefits.

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State individual mandates

For the 2019 tax year, for which you file tax returns in 2020, only two states have their own individual mandate: Massachusetts and New Jersey. The District of Columbia also has an individual mandate.

So even though there is no federal penalty for going without health insurance, you will still face a penalty if you live in one of these states.

Three states are also planning to add a penalty starting in 2020: California, Rhode Island, and Vermont.

Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.

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