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Health Care Individual Mandate

Beginning in 2014, the Affordable Care Act (ACA) requires most individuals to obtain acceptable health insurance coverage for themselves, and their family members, or pay a penalty. Because this provision has the effect of “requiring” individuals to have coverage, it is often referred to as the “individual mandate.” Individuals may be eligible for an exemption from the penalty in certain circumstances.

On January 30, 2013, the Departments of Health and Human Services (HHS) and the Treasury issued two proposed rules relating to the individual mandate.

Small groups

These rules outline exemptions from the individual mandate, explain how the penalty will be computed and establish standards and procedures for designating certain coverage as constituting “minimum essential coverage.” 


How Much is the Penalty?

The penalty for not obtaining acceptable health insurance coverage will be phased in over a three-year period and is the greater of two amounts—the “flat dollar amount” and “percentage of income amount.”


The penalty in 2014 will be $95 or up to 1 percent of income. Income for this purpose is the taxpayer’s household income minus the taxpayer’s exemption (or exemptions for a married couple) and standard deductions. The penalty amount increases to $325 or up to 2 percent of income in 2015. In 2016 and thereafter, the penalty increases to $695 or up to 2.5 percent of income.


The penalty is capped at the national average of the annual bronze plan premium. Families will pay half the penalty amount for children, up to a family cap of three times the annual flat dollar amount per year.

Who is Liable for a Penalty?

The penalty will be assessed against an individual for any month during which he or she does not maintain “minimum essential coverage,” beginning in 2014 (unless an exemption applies). The requirement to maintain minimum essential coverage applies to individuals of all ages, including children. The Treasury proposed regulations provide that an individual is treated as having coverage for a month so long as he or she has coverage for any one day of that month.

Minimum essential coverage includes coverage under:


  • A government-sponsored program, such as coverage under the Medicare or Medicaid programs, CHIP, TRICARE and certain types of Veterans health coverage;
  • An eligible employer-sponsored plan (including COBRA and retiree coverage);
  • A health plan purchased in the individual market; or
  • A grandfathered health plan.

Minimum essential coverage does not include specialized coverage, such as coverage only for vision care or dental care, workers’ compensation, disability policies, or coverage only for a specific disease or condition. Under the ACA, minimum essential coverage also includes any additional types of coverage that are designated by HHS or when the sponsor of the coverage follows a process outlined in regulations to be recognized as minimum essential coverage.


Exceptions to the Individual Mandate

The ACA provides the following nine categories of individuals who are exempt from the penalty for not maintaining minimum essential coverage:


  • Individuals who cannot afford coverage (those for whom a required contribution for coverage would cost more than 8 percent of their household income);
  • Taxpayers with income below the filing threshold;
  • Members of certain Indian tribes;
  • Individuals who are given a hardship exemption by HHS;
  • Individuals who experience a gap in coverage for less than a continuous three-month period (may only be used for one period without coverage per year);
  • Religious conscience objectors;
  • Members of a health care sharing ministry;
  • Incarcerated individuals; and
  • Individuals who are not citizens, nationals or lawfully present in the United States.


The Treasury proposed regulations provide that an individual who is eligible for an exemption for any one day of a month is treated as exempt for the entire month.

The HHS proposed regulations enumerate several situations that will always be treated as constituting a hardship for purposes of the hardship exemption, including:


  • Individuals who turn down coverage because the Exchange projects it will be unaffordable (even if his or her actual income for the year turns out to be higher so that they are not eligible for the affordability exemption);
  • Certain individuals who are not required to file an income tax return but who technically fall outside the statutory exemption for those with household income below the filing threshold; and
  • Individuals who would be eligible for Medicaid under the expansion, but live in a state that chooses not to expand Medicaid eligibility.


The HHS proposed regulations also provide that the hardship exemption will be available on a case-by-case basis for individuals who face other unexpected personal or financial circumstances that prevent them from obtaining coverage.

How is the Penalty Enforced?

Starting in 2015, individuals filing a tax return for the previous tax year will indicate which members of their family (including themselves) are exempt from the individual mandate. For family members who are not exempt, the taxpayer will indicate whether they had insurance coverage. For each non-exempt family member who doesn’t have coverage, the taxpayer will owe a payment. Spouses who file a joint return are jointly liable for the penalties that apply to either or both of them. Any individual who is eligible to claim a dependent will be responsible for reporting and paying the penalty applicable to that dependent.

The Internal Revenue Service (IRS) will generally assess and collect penalties in the same manner as taxes. However, the ACA imposes certain limitations on the IRS’ ability to collect the penalty. As a result, it is widely believed that any assessable penalty will be subtracted from the tax refund that the individual is owed, if any.

What is the individual shared responsibility provision?
Under the ACA, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.


Who is subject to the individual shared responsibility provision?
The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.


When does the individual shared responsibility provision go into effect?
The provision goes into effect on January 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without coverage or an exemption.

What are the statutory exemptions from the requirement to obtain minimum essential coverage?

  • Religious conscience – You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
  • Health care sharing ministry – You are a member of a recognized health care sharing ministry.
  • Indian tribesYou are a member of a federally recognized Indian tribe.
  • No filing requirement Your household income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age, and types and amounts of income. To find out if you are required to file a federal tax return, use the IRS Interactive Tax Assistant (ITA).
  • Short coverage gap You went without coverage for less than three consecutive months during the year.
  • Hardship A Health Insurance Marketplace, also known as an Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage.
  • Unaffordable coverage optionsYou can’t afford coverage because the minimum amount you must pay for the premiums is more than 8 percent of your household income.
  • Incarceration – You are in a jail, prison or similar penal institution or correctional facility after the disposition of charges against you.
  • Not lawfully present – You are neither a citizen, a national nor an alien lawfully present in the United States.


What do I need to do if I want to be sure I have minimum essential coverage or an exemption for 2014?
Most individuals in the United States have health coverage today that will count as minimum essential coverage and will not need to do anything more than continue the coverage that they have. For those who do not have coverage, who anticipate discontinuing the coverage they have currently or who want to explore whether more affordable options are available, Health Insurance Marketplaces (also known as Affordable Insurance Exchanges) will open for every state and the District of Columbia in October of 2013. These Health Insurance Marketplaces will help qualified individuals find minimum essential coverage that fits their budget and potentially financial assistance to help with the costs of coverage beginning in 2014. The Health Insurance Marketplace will also be able to assess whether applicants are eligible for Medicaid or the Children’s Health Insurance Program (CHIP). For those who will become eligible for Medicare during 2013, enrolling for Medicare will also ensure that you have minimum essential coverage for 2014.

For those seeking an exemption, a Health Insurance Marketplace will be able to provide certificates of exemption for many of the exemption categories. HHS has proposed regulations on how a Health Insurance Marketplace will go about granting these exemptions. Individuals will also be able to claim exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return are automatically exempt and do not need to take any further action to secure an exemption.