Individual Mandate Under the ACA
Released: 2015-05-13T00:00:00

This report describes the individual mandate as established under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). It also discusses the ACA reporting requirements designed, in part, to assist individuals in providing evidence of having met the mandate.

Individual Mandate

The ACA requires most individuals to have health insurance coverage or potentially to pay a penalty for noncompliance. Individuals are required to maintain minimum essential coverage for themselves and their dependents. Some individuals are exempt from the mandate and the penalty, and others may receive financial assistance to help them pay for the cost of health insurance coverage and the costs associated with using health care services. Calendar year 2014 was the first year in which individuals were expected to comply with the individual mandate requirement. Because the penalties are assessed through the federal tax filing process, calendar year 2015 is the first year in which the penalty is assessed (for calendar year 2014).

Minimum Essential Coverage

In general, individuals who are not exempt from the mandate must maintain minimum essential coverage to avoid the penalty. Minimum essential coverage is defined broadly in statute and is defined further in regulations; the definition includes most types of government-sponsored coverage (e.g., Medicare) as well as most types of private insurance (e.g., employer-sponsored insurance, or ESI). Table A-1 in Appendix A lists types of coverage that are and are not considered minimum essential coverage, as identified in statute, regulations, and guidance.

Penalty

With some exceptions, individuals are required to maintain minimum essential coverage for themselves and their dependents. Those who do not meet the mandate may be required to pay a penalty for each month of noncompliance. The penalty is calculated as the greater of either

A percentage of applicable income , defined as the amount by which an individual's household income exceeds the applicable tax filing threshold for the tax year; or A flat dollar amount assessed on each taxpayer and any dependents.

As shown in Table 1 , both the percentage and the flat dollar amount increase between 2014 and 2016, and the dollar amount is adjusted for inflation thereafter. When calculating the flat dollar amount assessed on a taxpayer and his or her dependents, the flat dollar amount is reduced by one-half for dependents under the age of 18 and the total family penalty is capped at 300% of the annual flat dollar amount. For example, in 2015 the flat dollar amount for a taxpayer and his or her dependents is limited to three times $325, or $975.

The total monthly penalty for a taxpayer and his or her dependents cannot be more than the cost of the national average premium for bronze-level health plans offered through health insurance exchanges (for the relevant family size). In other words, the total monthly penalty is capped. In 2015, the average premium is $207 per individual per month. If a taxpayer is liable to pay a penalty for more than one individual, the monthly individual amount ($207) is multiplied by the number of individuals subject to a penalty, up to a maximum of five individuals. So, in 2015 the maximum cap is $1,035 per month for any taxpayers who are liable for penalties for five or more individuals.

See Appendix B for penalty examples for 2014, 2015, and 2016.

Paying the Penalty

Any penalty that taxpayers are required to pay for themselves or their dependents must be included in their federal income tax return for the taxable year. Those individuals who file joint returns are jointly liable for the penalty.

Taxpayers who are required to pay a penalty but fail to do so will receive a notice from the Internal Revenue Service (IRS) stating that they owe the penalty. If they still do not pay the penalty, the IRS can attempt to collect the funds by reducing the amount of their tax refund for that year or future years. However, individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty for such failure. The Secretary of the Treasury cannot file notice of lien or file a levy on any property for a taxpayer who does not pay the penalty.

Exemptions

Certain individuals (and their dependents) are exempt from the individual mandate or its associated penalty. Table 2 describes the various exemptions. Most of the exemptions are outlined in statute and in regulations issued by the IRS. The ACA also gives the Secretary of Health and Human Services (HHS) the authority to determine the circumstances under which an individual may receive a hardship exemption. The following section, " Hardship Exemption " further details the circumstances identified by the HHS Secretary.

Hardship Exemption

Any individual whom the HHS Secretary determines has suffered a hardship with respect to the capability to obtain health insurance coverage will receive a hardship exemption. In regulations, HHS has identified a number of circumstances that allow individuals to receive a hardship exemption, including those in which an individual

experiences financial, domestic, or other circumstances that prevent him or her from obtaining coverage or the expense of purchasing coverage would cause him or her to experience serious deprivation of food, shelter, clothing, or other necessities; is unable to afford coverage based on projected household income; has income below the filing threshold (and therefore is eligible for the filing threshold exemption), except that he or she claimed a dependent with a filing requirement and had household income exceeding the filing threshold as a result; is ineligible for Medicaid based on a state's decision not to carry out the ACA expansion; is identified as eligible for affordable self-only ESI, but the aggregate cost of the ESI for all the employed members of the individual's family exceeds a certain percentage of household income; and is an Indian eligible for services through an Indian health care provider but is not eligible for an exemption based on being a member of an Indian tribe, or is eligible for services through the Indian Health Service.

Claiming an Exemption

Individuals can be exempt from the mandate and the penalty based on their characteristics, financial status, or affiliations (e.g., religious affiliations). Some exempt individuals do not have to take any actions to claim the exemption, such as those who live abroad for more than 330 days in a 12-month period and those who are bona fide residents of a U.S. possession. Other individuals must either obtain a certification of exemption from a health insurance exchange or claim the exemption through the tax filing process.

Regulations provide that most exemptions be applicable retrospectively (with an exception for a specific hardship definition) and be recertified annually; only the religious and Indian tribe exemptions are eligible for prospective or retrospective applicability and continuous certification.

Table 3 outlines the basic features of nine exemption categories.

Implementation

The individual mandate went into effect in 2014. When individuals filed their federal tax returns for that year, they had to report whether they maintained minimum essential coverage for each month in 2014 and whether they were exempt from the mandate for all or part of the year.

As of the date of this report, the Department of the Treasury has not released information from 2014 tax filings related to the individual mandate. Information such as the number of individuals who were subject to the penalty in 2014, the amount of any penalties owed, and the number of individuals who were exempt from the mandate is not currently available.

Potential Financial Assistance

Although the ACA requires most individuals to maintain minimum essential coverage, it provides financial assistance to some individuals to help them meet the requirement. Under the ACA Medicaid expansion, some states have expanded their Medicaid programs to include all non-elderly, nonpregnant individuals with income below 133% of the federal poverty level (FPL), which has increased Medicaid enrollment significantly. As of 2014, some individuals who do not qualify for Medicaid coverage, but who meet other ACA requirements, are able to receive subsidies to help pay for the premiums and cost-sharing requirements of health plans offered through an exchange.

Reporting Minimum Essential Coverage

The ACA requires that certain information be provided to the IRS and to individuals, in part to ensure that both parties have knowledge and proof that an individual is meeting the individual mandate. Every entity (including employers, insurers, and government programs) that provides minimum essential coverage to any individual must present a return to the IRS and a statement to the covered individual.

The person required to provide the return and statement is referred to as the reporting entity . In general, insurers are the reporting entities for all fully insured health insurance arrangements and plan sponsors are the reporting entities for all self-insured arrangements. A government agency or unit is the reporting entity for any coverage under a government-sponsored program, including any coverage that is provided through an insurer (e.g., a Medicare Advantage plan). An insurer does not have to provide a return or a statement for any coverage it offers through an individual health insurance exchange, as the exchange is the reporting entity for such coverage; however, insurers that offer small group coverage through a small business health options program (SHOP) exchange are the reporting entities for such coverage.

The return provided to the IRS must include the following:

the name, address, and employer identification number (EIN) of the reporting entity required to file the return; the name, address, and taxpayer identification number (TIN) of the responsible individual and each other individual covered under the policy or program; the months for which, for at least one day, each individual was covered under the policy or program; for coverage provided through the group plan of an employer— the name, address, and EIN of the employer sponsoring the plan; whether the coverage is a qualified health plan (QHP) offered through a SHOP exchange and the SHOP's unique identifier; and any other information as specified in forms, instructions, or published guidance issued by the Department of the Treasury.

The reporting entity also must provide a statement to each responsible individual covered under the policy or program. The statement must include the contact information for the person designated as the reporting entity's contact person; the policy number of the coverage, if any; and the information included in the return to the IRS for the responsible individual and any individuals listed on the return.

Reporting entities were required to begin submitting returns in 2014; however, in July 2013 the Department of the Treasury published a notice that delayed the reporting requirement until 2015. Reporting entities that do not file timely and accurate returns and those that do not provide statements to individuals could be subject to penalties.

Appendix A. Minimum Essential Coverage

Appendix B. Penalty Examples

The following are illustrative penalty examples for single individuals and for families of four (specifically, a married couple with two children under the age of 18). In all of the examples, the individual or individuals are subject to the individual mandate penalty for an entire calendar year.

The 2014 and 2015 examples use actual tax filing thresholds and penalty caps for the respective year. The 2014 filing thresholds are $10,150 for a single individual under the age of 65 with no dependents (single filing status) and $20,300 for a married couple filing jointly. The 2014 penalty cap is $204 per month per individual, up to a maximum of five individuals. The 2015 filing thresholds are $10,300 for a single individual under the age of 65 with no dependents (single filing status) and $20,600 for a married couple filing jointly. The 2015 penalty cap is $207 per month per individual, up to a maximum of five individuals.

Neither the tax filing thresholds nor the penalty caps for 2016 have been determined. Because the filing thresholds are linked to an inflation adjustment based on the Consumer Price Index for All Urban Consumers (CPI-U), they likely will be higher when implemented in 2016. The examples for 2016 use estimated filing thresholds. The Congressional Research Service does not have the information needed to estimate the 2016 penalty caps; therefore, estimated penalty caps are not used in the 2016 examples. Because the 2016 filing thresholds are estimated and the penalty caps are not used, the numbers for 2016 are meant for illustrative purposes only. These examples are best used to show the relative scope of the penalties and the relationship between the various components of the formulas for calculating the penalty.

Penalty Examples: Single Individual

Based on the information above, the following are illustrative individual-mandate penalties for a single individual with no dependents who is subject to the penalty for an entire calendar year .

In 2014,

an individual with income above $10,150 (the tax filing threshold) but at or below $19,650 will pay the $95 flat amount; an individual with income above $19,650 but below $254,950 will pay 1% of applicable income (the difference between the individual's income and $10,150); the penalty cap will apply to an individual with income at or above $254,950, so the individual will pay $2,448.

In 2015,

an individual with income above $10,300 (the tax filing threshold) but at or below $26,550 will pay the $325 flat amount; an individual with income above $26,550 and below $134,500 will pay 2% of applicable income (the difference between the individual's income and $10,300); the penalty cap will apply to an individual with income at or above $134,500, so the individual will pay $2,484.

In 2016,

an individual with income above the filing threshold (estimated to be $10,450 in 2016) but at or below an estimated $38,250 will pay the $695 flat amount; an individual with income above an estimated $38,250 and below the amount that will trigger the penalty cap will pay 2.5% of applicable income (the difference between the individual's income and the filing threshold); an individual with income at or above the amount that will trigger the penalty cap will pay the capped amount.

Penalty Examples: Family of Four

Based on the information above, the following are illustrative individual mandate penalties for a family of four (married couple with two children under the age of 18) who are all subject to the penalty for an entire calendar year .

In 2014,

those with income above $20,300 (the tax filing threshold) but at or below $48,800 will pay the $285 flat dollar amount; those with income above $48,800 but below $999,500 will pay 1% of applicable income (the difference between the family's household income and the filing threshold); the penalty cap will apply to a family of four with income at or above $999,500, so the family will pay $9,792.

In 2015,

those with income above $20,600 (the tax filing threshold) but at or below $69,350 will pay the $975 flat dollar amount; those with income above $69,350 and $517,400 will pay 2% of applicable income (the difference between the family's household income and the filing threshold); the penalty cap will apply to a family of four with income at or above $517,400, so the family will pay $9,936.

In 2016,

those with income above the filing threshold (estimated to be $20,900 in 2016) but at or below an estimated $104,300 will pay the $2,085 flat dollar amount; those with income above an estimated $104,300 and below the amount that will trigger the penalty cap will pay 2.5% of applicable income (the difference between the family's household income and the filing threshold); a family of four with income at or above the amount that will trigger the penalty cap will pay the capped amount.