Opinion ID: 223249
Heading Depth: 3
Heading Rank: 6

Heading: Individual Mandate

Text: The individual mandate and its penalty are housed entirely in the Internal Revenue Code, in subtitle D, labeled Miscellaneous Excise Taxes. 26 U.S.C. § 5000A et seq. The Act mandates that, after 2013, all applicable individuals (1) shall maintain minimum essential coverage for themselves and their dependents, or (2) pay a monetary penalty. Id. § 5000A(a)-(b). Taxpayers must include the penalty on their annual federal tax return. Id. § 5000A(b)(2). Married taxpayers filing a joint return are jointly liable for any penalty. Id. § 5000A(b)(3)(B).
At first glance, the term minimum essential coverage, as used in the Internal Revenue Code, sounds like it refers to a base level of benefits or services. However, the Act uses a different termthe essential health benefits package in Title 42to describe health care benefits and services. 42 U.S.C. § 300gg-6(a) (effective Jan. 1, 2014). In contrast, minimum essential coverage refers to a broad array of plan types that will satisfy the individual mandate. 26 U.S.C. § 5000A(f)(1). An individual can satisfy the mandate's minimum essential coverage requirement through: (1) any government-funded health plan such as Medicare Part A, Medicaid, TRICARE, or CHIP; (2) any eligible employer-sponsored plan; (3) any health plan in the individual market; (4) any grandfathered health plan; or (5) as a catch-all, such other health benefits coverage that is recognized by HHS in coordination with the Treasury. Id. The mandate provisions in § 5000A do not specify what benefits must be in that plan. The listed plans, in many instances, satisfy the mandate regardless of the level of benefits or coverage.
For example, a variety of government-sponsored programs will satisfy the individual mandate. For individuals 65 or over, enrolling in Medicare Part A will suffice. Id. § 5000A(f)(1)(A)(i). Individuals and families may satisfy the mandate by enrolling in Medicaid, if eligible. Id. § 5000A(f)(1)(A)(ii). Qualifying children under age 19 can satisfy the mandate by enrolling in CHIP. Id. § 5000A(f)(1)(A)(iii). Government-sponsored programs for veterans, active and former military personnel and their families, active Peace Corps volunteers, and active and retired civilian Defense Department personnel and their dependents satisfy the mandate. Id. § 5000A(f)(1)(A)(iv), (v), (vi).
Individuals may also satisfy the mandate by purchasing coverage through any eligible employer-sponsored plan. Id. § 5000A(f)(1)(B). An eligible employer-sponsored plan is a group health plan or group health insurance coverage offered by an employer to the employee, which is defined broadly as: (1) a governmental plan established by the federal, state, or local government for its employees; (2) any other plan or coverage offered in the small or large group market within a State; or (3) a grandfathered health plan offered in a group market. Id. § 5000A(f)(2). Health plans of large employers satisfy the individual mandate whatever the nature of the benefits offered to the employee. [48] Whether a self-insured health plan of large employers satisfies the mandate is another story. [49] The mandate's § 5000A(f)(2) refers to plans in the small or large group market.  Id. § 5000A(f)(2)(emphasis added). A self-insured health plan, by definition, is not sold or offered in a market. It is thus not clear whether large employers' self-insured plans will constitute eligible employer-sponsored plans in § 5000A(f)(2) and thereby satisfy the mandate. It may be that HHS will later recognize self-insured plans under the other coverage or grandfathered plan categories in the mandate's § 5000A(f)(2).
Individuals can also satisfy the mandate by purchasing insurance in the individual market through Exchanges or directly from issuers. Id. § 5000A(f)(1)(C). The Act imposes the essential health benefits package requirement on plans sold in the individual and small group markets. 42 U.S.C. § 300gg-6 (effective Jan. 1, 2014). However, in the individual market, insurers can offer catastrophic plans to persons under age 30 or certain persons exempted from the mandate. Id. § 18022(e).
An already-insured individual can fulfill the individual mandate by being covered by any grandfathered health plan, 26 U.S.C. § 5000A(f)(1)(D), which is any group health plan or health insurance coverage in which an individual was enrolled on March 23, 2010. [50] 42 U.S.C. § 18011(a)(1), (e). While not subject to many of the Act's product reforms, grandfathered plans must comply with some provisions, among them the extension of dependent coverage until age 26, the medical-loss ratio requirements, and the prohibitions on (1) preexisting condition exclusions, (2) lifetime limits on coverage, (3) excessive waiting periods, and (4) unfair rescissions of coverage. Id. § 18011(a)(2)-(4), (e). Under the interim final regulations issued by HHS, plans will lose their grandfathered status if they choose to significantly (1) cut or eliminate benefits; (2) increase copayments, deductibles, or out-of-pocket costs for their enrollees; (3) decrease the share of premiums employers contribute for workers in group plans; or (4) decrease annual limits. [51] 45 C.F.R. § 147.140(g).
The individual mandate even provides a catch-all that leaves open the door to other health coverage. The minimum essential coverage requirement may be met by any other coverage that HHS, in coordination with the Treasury, recognizes for purposes of meeting this requirement. 26 U.S.C. § 5000A(f)(1)(E).
The individual mandate, however, does not apply to eight broad categories of persons, either by virtue of an exemption from the mandate or an exception to the mandate's penalty. The Act carves out these three exemptions from the individual mandate: (1) persons with religious exemptions; (2) aliens not legally present in the country; and (3) incarcerated persons. Id. § 5000A(d). The Act also excepts five additional categories of persons from the individual mandate penalty: (1) individuals whose required annual premium contribution exceeds 8% of their household income for the taxable year; [52] (2) individuals whose household income for the taxable year is below the federal income tax filing threshold in 26 U.S.C. § 6012(a)(1); (3) members of Indian tribes; (4) individuals whose gaps in health insurance coverage last less than three months; and (5) as a catch-all, individuals who, as determined by HHS, have suffered a hardship regarding their ability to obtain coverage under a qualified health plan. Id. § 5000A(e).
If an applicable individual fails to purchase an insurance plan in one of the many ways allowed, the individual must pay a penalty. Id. § 5000A(b)(1). The annual penalty will be either: (1) a flat dollar amount, or (2) a percentage of the individual's income if higher than the flat rate. Id. § 5000A(c)(1). However, the percentage-of-income figure is capped at the national average premium amount for bronze-level plans in the Exchanges. [53] Id. The flat dollar penalty amount, which sets the floor, is equal to $95 in 2014, $325 in 2015, and $695 in 2016. Id. § 5000A(c)(2)(A), (c)(3)(A)-(C). Beyond 2016, it remains $695, except for inflation adjustments. [54] Id. § 5000A(c)(3)(D). The percentage-of-income number that will apply, if higher than the flat dollar amount, is a set percentage of the taxpayer's income that is in excess of the tax-filing threshold (defined in 26 U.S.C. § 6012(a)(1)). [55] Id. § 5000A(c)(2). In any event, the total penalty for the taxable year cannot exceed the national average premium of a bronze-level qualified health plan. Id. § 5000A(c)(1).
An individual who fails to pay the penalty is not subject to criminal or additional civil penalties. Id. § 5000A(g)(2)(A), (B). The IRS's authority to use liens or levies does not apply to the penalty. Id. § 5000A(g)(2)(B). No interest accrues on the penalty. The Act contains no enforcement mechanism. See id. All the IRS, practically speaking, can do is offset any tax refund owed to the uninsured taxpayer. [56] We now review the Act's fourth component aimed at reducing the number of the uninsured: the employer penalty.