Individual Mandate: A Penalty For Not Having Health Insurance

Christian Worstell
In this article...
  • The individual mandate required Americans to have health insurance or pay a penalty. While there is no longer a federal penalty, some states still have their own mandate. Find out if you might face a penalty for not having health insurance.

Is it mandatory to have health insurance? Not exactly. Until 2019, however, anyone who did not maintain health insurance coverage had to pay a penalty. And although that federal mandate no longer exists, certain states continue to impose their own penalty for not having health insurance, often referred to as an individual mandate. 

In this article we’ll explore the federal individual mandate that was previously in place, the states that continue to issue penalties, who is exempt from the mandate and more. 

The History Behind the Penalty

The penalty for not maintaining health insurance, otherwise known as the “individual mandate,” was a provision of the 2010 Affordable Care Act (ACA), or “Obamacare.” The penalty officially went into effect on January 1, 2014. 

The goal of the penalty was to lower the cost of health insurance across the board by ensuring everyone was covered. With no penalty in place, young and healthy people may choose to go without health insurance. And when such people are removed from the ranks of the insured, the remaining pool of insured people is then older and less healthy.

The rationale behind the mandate was that having young and healthy people included among the insured population would broaden the scope of coverage and would help drive down the average cost of insurance for everyone across the industry.

Opponents of the mandate argued that it was unconstitutional to penalize someone for not buying something and that the mandate exceeded the authority of Congress to regulate interstate commerce. Dozens of states filed lawsuits in response and the Supreme Court ultimately upheld the mandate on the grounds that the penalty was in fact a tax, and that governments maintain the right to tax citizens.

More than 44 million Americans under the age of 65 were uninsured in 2013, the year before the mandate went into effect. That number fell to just over 28 million by 2016, two years after the mandate took effect.

In 2019, the first year that there was no penalty for not having health insurance, the number of uninsured people under 65 rose again, to nearly 33 million.  

It’s difficult to determine the effectiveness of the individual mandate because the penalty was enacted at the same time as many other provisions of the Affordable Care Act.

These provisions included the prohibition of coverage denials for pre-existing conditions, expansion of Medicaid eligibility and the launch of the federal Health Insurance Marketplace and the associated premium subsidies, all of which played a role in health care costs and the rate of the uninsured.   

The individual mandate also had a very short life, having been enacted for just five years. The Tax Cuts and Jobs Act of 2017 eliminated the penalty beginning in 2019. Technically the individual mandate is still in place, but the penalty for not having health insurance has been set to $0. 

Only a small percentage of people were ever subjected to the penalty. In 2014, the first year that the mandate was in effect, just 5.4% of the population (8.1 million people) paid the fine. By 2016, just 3.3% of people were forced to pay the penalty. Meanwhile, nearly twice as many people were granted exemptions to the penalty for various reasons. 

How Much Was the Penalty For Not Having Health Insurance?

The penalty for not having health insurance was either a flat tax or a percentage of your income, whichever amount was greater.

  • In 2014, the first year that the penalty for not having health insurance was in effect, the annual fine was $95 per adult and $47.50 per child or 1% of your income (whichever was greater). There was a household maximum penalty of $285. Those earning at least 250% of the federal poverty level had slightly higher penalties based on a percentage of their income. 

  • In 2015, the penalty increased to $325 per individual and $162.50 per child or 2% of your income. The household limit increased to $975.

  • In 2016, the penalty went up to $695 for adults and $347.50 for children or 2.5% of your income with a household limit of $2,085.

The penalty amounts remained the same in 2017 and 2018 before being dropped to $0 in 2019. 

What States Require Health Insurance?

Five states and the District of Columbia still have a penalty in place for not having health insurance.

They are:

  1. California
  2. District of Columbia
  3. Massachusetts
  4. New Jersey
  5. Rhode Island
  6. Vermont

California

California introduced an individual mandate in 2020 modeled after the ACA’s penalty. Revenue generated by the mandate helps cover the cost of new premium subsidies that extend to higher income levels than the Obamacare subsidies.

California taxpayers who received a California Premium Assistance Subsidy (or subsidies) for health insurance in 2021 may have to pay back some or all of the subsidy amount when they file their 2021 tax return.

District of Columbia

Washington D.C.’s penalty for not having health insurance took effect in 2019. Funds raised from penalty payments are intended to help fund outreach and enrollment assistance along with programs that improve the availability and affordability of coverage.

Massachusetts

Massachusetts implemented a penalty for not having health insurance back in 2006. The penalty is 50% of the cost of the lowest-cost plan and applies to anyone with an income of at least 150% of the federal poverty level.

Revenue from the mandate helps cover the cost of coverage for those with incomes of less than 300% of the federal poverty level. 

New Jersey

New Jersey instituted an individual mandate in 2019, after the federal mandate was reduced to a $0 penalty. The maximum fine in New Jersey is equal to the average cost of the state’s Bronze level plan and revenues are used to fund the state’s reinsurance program. 

Rhode Island

Rhode Island began penalizing people for not having health insurance in 2020 and puts the funds toward a reinsurance program.  

Vermont

Vermont has a penalty for not having health insurance, but like the federal individual mandate, the amount of the fine in Vermont is $0. The state mandate took effect in 2020 but did so without an agreement about the size of the penalty. The penalty amount may or may not change with future legislation. 

Were There Exemptions to the Individual Mandate?  

A decreasing rate of uninsured Americans wasn’t the only reason so few people ended up paying a penalty for not having health insurance. There were also millions of exemptions granted to the following groups of people:

  1. Select religious groups whose beliefs forbid them from obtaining health insurance, such as the Amish.

  2. American Indians who are members of federally recognized Indian tribes.

  3. Those who do not need to file a tax return because they have a household income below a federal threshold.

  4. Those who are incarcerated.

  5. Those would be required to spend more than 8% of their income on a premium for the lowest-cost plan.

  6. Those who can claim a hardship such as eviction, homelessness, death of a family member or bankruptcy. Those who live in states without expanded Medicaid eligibility were also able to receive exemptions for a hardship if they did not qualify for Medicaid.

  7. Those who are not lawfully present in the U.S. and not paying taxes.

  8. Those who go uninsured for a period of less than three months per calendar year. As long as you maintained insurance for at least nine months of the year, you were exempt from the mandate. 

In 2015, 6.5 million people paid a penalty for not having health insurance, but 12.7 million were granted an exemption. In 2016, 4 million people paid the penalty and 10.7 million received an exemption.

Christian Worstell
About the Author

Christian Worstell is a licensed insurance agent and a Senior Staff Writer for HelpAdvisor.com. He is passionate about helping people navigate the complexities of federal benefits and understand their coverage options.

His work has been featured in outlets such as VoxMSN, and The Washington Post, and he is a frequent contributor to health care and finance blogs.

Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism. He currently lives in Raleigh, NC.

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