What Is the Individual Mandate Under the ACA?
- The Affordable Care Act (also called Obamacare) includes an Individual Mandate that individuals and families buy health insurance. It once imposed tax penalties on those who failed to comply. The penalties were eliminated in 2017. Some states have their own mandates with penalties.
The Affordable Care Act (ACA), more commonly known as Obamacare, was signed into law in 2010. It’s full name is the Patient Protection and Affordable Care Act, and it remains the most significant change to the U.S. health system since the creation of Medicare and Medicaid in 1965.
It is also the most controversial. One of the more divisive aspects of Obamacare is known as the “individual mandate.” This provision requires individuals to purchase at least the minimum coverage plan available to them – unless they qualify for certain exemptions – or face a tax penalty.
In 2017, Congress and the Trump Administration passed the Tax Cuts and Jobs Act, which reduced the penalty of the Obamacare individual mandate to zero dollars, starting in 2019. However, some states continue to have an individual mandate, with penalties, at the state level.
Who Is Affected by the Individual Mandate?
The vast majority of Americans are not affected by the individual mandate. Anyone who receives health insurance coverage from an employer or from the government (such as Medicaid, Medicare and the VA), is not affected, because those health insurance plans meet the minimum essential coverage requirement.
Only those who do not have such coverage are mandated to by a minimum amount of coverage, through the ACA marketplace. The mandate still exists, but there is no penalty.
Why Is There an Individual Mandate?
Any type of insurance – home, auto, business and health – only works by creating a large group of policyholders, called "risk pools." The theory is that everyone pays insurance premiums into the risk pool, but only some will file claims. That helps cover the cost of everyone in the risk pool, but it has to be large enough so there is enough money to fund the claims.
Just as everyone pays for home insurance in case of a fire, but most people never have a fire, a health insurance risk pool requires healthy people paying premiums even though they may not need coverage. That creates a large-enough pool of money to cover the costs of those who do get sick or injured and need expensive health care.
It also means that, with everyone required to have insurance, eventually there will be enough money to lower premiums for everyone. HealthInsurance.org says this is also known as a shared responsibility provision.
What Are the Average Obamacare Penalties?
By adding penalties to those who failed to sign up, the ACA encouraged building these risk pools and also generated funds from those who refused to join.
The IRS reported that the average penalty amount was around $210 in 2014. By 2018, a family of four that earned $60,000 owed a penalty of $2,085.
This penalty was never higher than the average cost of a simple Obamacare plan.
What Is the Current State of the Federal Individual Mandate ?
When Congress eliminated the tax penalty to the individual mandate, opponents of Obamacare argued that this made the entire ACA unconstitutional. The case reached the U.S. Supreme Court in 2020. The Court ruled that the ACA is constitutional even without the tax penalty, and the ACA remains the law of the land.
The individual mandate thus still exists, technically, but with no penalty for noncompliance, which of course makes it somewhat irrelevant on the federal level.
State Individual Mandates
Even though the federal individual mandate penalty was eliminated, five states and the District of Colombia have legislated their own individual mandates and penalties.
As of 2021, the following states and districts have individual mandates:
- District of Columbia
- New Jersey
- Rhode Island
Other states have considered or are considering individual mandates, including:
None of these states has passed state individual mandates as of 2021.
California Individual Mandate
California requires individuals and their dependents who can afford coverage to have ACA-compliant health insurance or be assessed a tax penalty. The state offers subsidies to help lower income residents afford health insurance. Some may be eligible for exemptions in certain situations.
In 2021, the annual penalty for Californians who go without health insurance is 2.5% of household income or at least $750 per adult and $375 per dependent under 18, whichever is greater. The dollar figures will rise yearly with inflation. The penalty is capped at the state average premium for a bronze level plan on the California exchange for the applicable household size and does not apply if that premium exceeds 8.3% of household income.
Covered California, the state healthcare exchange, reported that restoring the individual mandate reduced premiums on average 3.2% in 2020, saving Californians an average of $167 per year on their health insurances premiums.
Washington D.C. Individual Mandate
The District of Columbia requires individuals and their dependents who can afford coverage to have ACA-compliant health insurance or pay a penalty on residents who go without health insurance but can afford it. There are exemptions for certain circumstances, including financial hardship.
According to dchealthlink.com, there is a maximum tax penalty for not having coverage in DC (“penalty cap”), based on the average premiums for bronze level health plans available on DC Health Link.
In 2021 this amount is $3,258/year per person and, for households with more than one person without coverage, it is multiplied by the number of people in the household without coverage up to a maximum of five household members. Therefore, in 2020, a household of five that went the entire year without health coverage in DC would have a penalty cap of $16,290, and this would be the same penalty cap applied to a household of six (or more) in the same situation.
Massachusetts Individual Mandate
Massachusetts requires residents who can afford coverage to have ACA-compliant health insurance or pay a penalty on residents who go without health insurance but can afford it. The state offers subsidies to help lower-income residents afford health insurance.
The Massachusetts individual mandate actually predates and was part of the blueprint for the Obamacare individual mandate.
According to Mass.gov, a Massachusetts resident who cannot afford insurance won’t be penalized. Those with income at or below 150% of the federal poverty level also won’t be penalized.
The tax penalty varies by age, income and family size, but cannot be more than 50% of the least expensive plan premium that you would have qualified for through Health Connector, the Massachusetts health insurance exchange.
New Jersey Individual Mandate
New Jersey requires residents who can afford coverage to have ACA-compliant health insurance or pay a penalty on residents who go without health insurance but can afford it. The state offers subsidies to help lower-income residents afford health insurance. There are certain exemptions.
The penalty, also known as the Shared Responsibility Payment, varies depending on income and family size, and is capped at the cost of the average statewide premium for bronze health insurance plans.
According to NJ.gov, the minimum tax penalty for individuals is $695, and the maximum was $3,012 for the 2020 tax year. A family of five earning $200,000 or less paid a minimum tax penalty in 2020 of $2,351 and a maximum is $5,074.
Rhode Island Individual Mandate
Rhode Island requires residents who can afford coverage to have ACA-compliant health insurance or pay a penalty on residents who go without health insurance but can afford it. The state offers subsidies to help lower-income residents afford health insurance. There are certain exemptions, including a COVID exemption added for 2021.
The penalty is $695 for each adult who doesn’t have insurance and $347.50 for each uninsured child, or 2.5% of the household income, whichever amount is greater. These penalties will increase every year according to inflation. The penalty cannot be greater than the total annual premium for an average bronze plan in Rhode Island
Vermont Individual Mandate
Vermont requires residents to self-report whether or not they have ACA-compliant insurance on their 2020 tax forms. There is currently no penalty for failure to have ACA-compliant health coverage in 2021.