Is health insurance mandatory in the United States?

When the Affordable Care Act (ACA) was signed into law in 2010, it included an “individual mandate” that required almost all Americans to either get health insurance coverage or pay a penalty tax. Last December, the Tax Cuts and Jobs Act of 2017 eliminated that “individual mandate”. So what does that mean for you? Is health insurance still mandatory in the United States?

For now, it is.

What is the “individual mandate”?

The “individual mandate” requires most Americans and their families to have qualifying health coverage that provides the minimum essential coverage under ACA. Starting in 2014, those who did not meet this requirement had to pay a fine when they filed their taxes.

Who does the “individual mandate” apply to and who is exempt?

Almost everyone in the United States is included under the “individual mandate” and must have health insurance or pay the tax penalty. Individuals who qualify for health coverage exemption include the following:

  • Those who are incarcerated
  • Those whose incomes are so low that they are not required to file a tax return
  • Those who would have to pay more than 8 percent of their income to pay for health insurance (exact percentage is set by the IRS each year)
  • Those who are members of a Native American tribe
  • Those whose religions object to having health insurance
  • Those who belong to a health care sharing ministry
  • Those who are in the U.S. illegally
  • Those who qualify for a hardship exemption

Hardship exemptions are approved on a case-by-case basis and may only exempt you from health insurance coverage for part of the year. Hardship exemptions include experiencing homelessness, filing for bankruptcy, and experiencing domestic violence, among others. You can see a full list of qualifying hardship exemptions and get the forms to apply for them at HealthCare.gov.

United States citizens who live abroad are also subject to the “individual mandate”. However, they are categorized as exempt if they are physically out of the U.S. for at least 330 full days during any 12 consecutive months or are bona fide residents of a foreign country for an entire taxable year.

What is the penalty for not having health insurance?

If you do not belong to one of the exempt groups, do not qualify for a hardship exemption, and do not have health insurance, you will be fined via a tax penalty when you file your tax returns for the year. This is also known as the “individual shared responsibility payment”, and the amount differs by year.

For the 2017 tax year, the fine is the higher of the following:

  • 2.5 percent of household income, with a maximum equaling to the annual premium for the national average price of a Bronze plan available on the health insurance marketplace
  • $695 per uninsured adult and $347.50 per uninsured child under 18, with a maximum amount of $2,085

If you do have health insurance for part of the year, you don’t have to pay the penalty for those months. For purposes of the individual mandate penalty, even having coverage for one day of the month counts. For the rest of the year, the fee is 1/12 of the total for each month you don’t have coverage. You can estimate your fine by using the IRS’s “individual shared responsibility payment” estimator.

Do I have to have health insurance the entire year?

Technically, you don’t have to have health insurance all 365 days a year to avoid the tax penalty. If you’re covered for even just one day of a month, you are considered as having minimum essential coverage for the entire month.

In addition, you could also qualify for a “short coverage gap” exemption. You will qualify for this exemption if your lack of health insurance coverage was for a period of less than three months. However, this coverage only applies to the first gap each year, so if you lack health insurance more than once during a calendar year, the exemption will only cover the first gap. For example, if you do not have insurance in May and then again in September, you will only be exempt for May and have to pay the penalty for your second gap.

Is health insurance mandatory in 2018?

The Tax Cuts and Jobs Act of 2017 that was signed into law in December 2017 included the repeal of the “individual mandate”. However, this repeal does not go into effect until 2019. That means health insurance is still mandatory in 2018, and if you choose not to have health insurance, you will still pay the 2018 health insurance penalty.

If you missed the 2018 Open Enrollment Period, find out if you have a Qualifying Life Event. If you do, you can sign up for health insurance during a Special Enrollment Period and avoid the penalty.

Is health insurance mandatory in 2019?

With the repeal of the “individual mandate” that goes into effect in 2019, you won’t legally have to have health insurance nor will you be fined if you don’t. Having health insurance may still be a smart option, given the high costs of healthcare in the United States should you need it.

Does the repeal of the “individual mandate” mean Obamacare is gone?

No. The “individual mandate” was just one aspect of the Affordable Care Act. While there will be no individual mandate penalty after 2018, other aspects of Obamacare still stand, barring any further changes. This means key elements such as providing federal subsidies, ensuring essential health benefits such as preventive care, and guaranteeing coverage for those with pre-existing conditions are all still in place.

If you have any questions about your Affordable Care Act health insurance plan or about the individual mandate tax penalty, don’t hesitate to ask the HealthSherpa team!

HealthSherpa

HealthSherpa is a free website and team of real people who can help you find, enroll in, and make the best use of your marketplace health insurance.

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