Did the Continuous Coverage Requirement Go Into Effect
The ACA's individual mandate penalty, which used to be collected by the IRS on federal tax returns, was reduced to $0 after the end of 2018. In most states, people who have been uninsured since 2019 are no longer assessed a penalty.
But there are some areas of the country where penalties still apply if a person is uninsured and not eligible for an exemption. This article will explain the basics of the ACA's individual mandate, and where residents are still potentially subject to a tax penalty if they go without health insurance.
As of 2022, there are penalties for being uninsured in Massachusetts, New Jersey, California, Rhode Island, and the District of Columbia.
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More than a decade after it was enacted, most parts of the Affordable Care Act (ACA) (aka Obamacare) are supported by the majority of Americans.
This includes guaranteed-issue coverage regardless of pre-existing conditions, premium tax credits (subsidies) that make coverage more affordable, coverage for essential health benefits, the elimination of annual and lifetime benefit maximums, and the expansion of Medicaid.
But the individual shared responsibility penalty, aka the individual mandate penalty, was always an unpopular provision of the law. The mandate went into effect in 2014, requiring almost all Americans to maintain health insurance coverage unless they are eligible for an exemption.
From 2014 through 2018, there was a penalty assessed by the IRS on people who didn't maintain coverage and who weren't eligible for an exemption. The individual mandate itself still exists (and qualifying for an exemption from the mandate still allows a person to buy a catastrophic health plan even if they're 30 or older). But there is no longer a federal penalty for non-compliance.
Individual Mandate Penalty Repeal
Former President Trump campaigned on a promise to repeal the ACA and replace it with something else. Republicans in the House passed the American Health Care Act (AHCA) in 2017 but the legislation failed in the Senate, despite repeated attempts by GOP Senators to pass it.
Ultimately, Republican lawmakers passed the Tax Cuts and Jobs Act and President Trump signed it into law in December 2017. Although the tax bill left the rest of the ACA intact, it repealed the individual mandate penalty, as of 2019 (other provisions of the tax bill took effect in 2018, but the individual mandate repeal was delayed by a year).
Although Congress did not repeal anything other than the mandate penalty (and later, some of the ACA's taxes), a lawsuit was soon filed by a group of GOP-led states, arguing that without the penalty, the mandate itself was unconstitutional.
They also argued that the mandate was not severable from the rest of the ACA, and so the entire ACA should be declared unconstitutional. A federal judge agreed with them in late 2018.
An appeals court panel agreed in late 2019 that the individual mandate is not constitutional, but sent the case back to the lower court for them to decide which provisions of the ACA should be overturned.
The case ultimately ended up at the Supreme Court, where the justices ruled in favor of the ACA. So although there is still no federal penalty for being uninsured, the rest of the ACA has been upheld by the Supreme Court (this was the third time that the Supreme Court upheld the ACA; earlier rulings, in 2012 and 2015, also kept the ACA in place).
State Individual Mandate Penalties
With the elimination of the federal individual mandate penalty, some states have implemented their own mandates and penalties:
- Massachusetts already had a mandate and penalty, which has been in place since 2006. The state had not been assessing the penalty on people for whom the federal penalty applied, but started assessing the penalty again as of 2019.
- New Jersey implemented an individual mandate and an associated penalty starting in 2019.
- The District of Columbia also implemented an individual mandate and associated penalty as of 2019.
- Rhode Island created an individual mandate and associated penalty as of 2020.
- California created an individual mandate and associated penalty as of 2020.
Most of the states with individual mandates have modeled their penalties on the federal penalty that was used in 2018, which is $695 per uninsured adult (half that amount per child), up to $2,085 per family, or 2.5% of household income above the tax filing threshold, although there are some state-to-state variations.
In the states that have their own individual mandates and associated penalties, exemptions are available for a variety of reasons. The exemption criteria are generally similar to the exemption criteria used for the federal government's individual mandate, but there are some variations from one state to another.
Vermont has an individual mandate that took effect in 2020, but the state has not yet created any sort of penalty for non-compliance.
Maryland created a program under which the state tax return asks about health insurance coverage, but instead of penalizing uninsured residents, the state is using the data in an effort to get these individuals enrolled in health coverage. Other states have since followed Maryland's lead in creating an "easy enrollment" program.
Effects on Insurance Premiums
The elimination of the individual mandate penalty in 2019 contributed to higher individual market (non-group) premiums for 2019, because insurers expected that the people likely to drop their coverage after the penalty was eliminated would be healthy, whereas sick people will tend to keep their coverage regardless of whether there's a penalty for being uninsured.
The penalty's original purpose was to encourage healthy people to join the risk pool, as a balanced risk pool (with enough healthy people to offset the claims costs of the sick people) is necessary for any health insurance product to function.
According to rate filings for 2019 plans, average premiums would have decreased for 2019 if the individual mandate penalty had remained in place (instead, there was a small average increase in rates).
The primary reason average premiums increased instead of decreasing for 2019 was the elimination of the individual mandate penalty, along with the Trump administration's efforts to expand access to short-term health plans and association health plans.
Those plans appeal to healthier individuals, so their expansion has the same effect as the penalty repeal, in terms of reducing the number of healthy people who maintain ACA-compliant individual market coverage. Note that although average benchmark premiums decreased slightly in 2019, overall average premiums did increase that year.
But because the ACA's premium subsidies adjust to keep coverage affordable even when premiums increase, the majority of people who buy health plans in the exchanges have continued to do so, and enrollment has grown to a record high as of 2022.
Although there was a drop in enrollment after the individual mandate penalty was eliminated, it was very modest: 11.75 million enrollees in 2018, dropping to 11.44 million in 2019, and then dropping only slightly in 2020, to 11.41 million.
And enrollment grew in 2021: There were 12 million people who enrolled in plans through the exchange during the open enrollment period, and another 2.5 million people signed up during the COVID-related special enrollment period in 2021.
During the open enrollment period for 2022 coverage, enrollment in the exchanges reached a record high of 14.5 million people.
Enrollment in full-price plans—including everyone who purchases coverage outside the exchanges and everyone who didn't qualify for subsidies in the exchange—had dropped much more significantly over the last few years.
But for 2021 and 2022, the American Rescue Plan has eliminated the income cap for subsidy eligibility, making subsidies more widely available and coverage more affordable for more people. This was the driving factor behind the record-high enrollment in 2022 (the subsidy enhancements took effect mid-year in 2021, so the open enrollment period for 2022 was the first time they were available during an open enrollment period).
Why Does It Matter Whether People Have Health Insurance?
The ACA's individual mandate penalty was never popular, but rates would have been lower in 2019 if the individual mandate had not been eliminated. And that continues to be baked into the rates that insurers use in subsequent years.
Prior to 2014, there was no mandate, but insurance companies in most states could decline applications or charge additional premiums based on applicants' medical history.
Once coverage became guaranteed-issue (meaning insurers could no longer consider applicants' medical history), it became necessary to impose some sort of measure to ensure that people maintain coverage year-round.
Otherwise, people would be more likely to go without coverage when they're healthy, and only sign up for coverage when they're in need of health care, which would result in higher premiums (the limited enrollment periods are the other part of the incentive to ensure that people maintain coverage year-round).
But as we've seen in the years since the individual mandate penalty was eliminated, enrollment in plans through the exchanges has remained quite steady, thanks to the ACA's premium subsidies, combined with limited enrollment opportunities (i.e., you cannot just purchase coverage whenever you like; it has to be during open enrollment or a special enrollment period; this applies outside the exchanges as well).
Summary
There is no longer a federal penalty for not having health insurance. But in DC, Massachusetts, New Jersey, Rhode Island, and California, the state imposes its own penalty if a person doesn't maintain health insurance and isn't eligible for an exemption.
A Word From Verywell
In most of the country, there is no longer a penalty for being without health insurance. But it's still wise to have health insurance. Not having coverage means that health care for a serious ailment could be unaffordable or completely inaccessible.
And it is generally not possible to sign up for coverage outside of open enrollment if you don't have a qualifying event (and many of the qualifying events now require the person to have already had minimum essential coverage in place before the qualifying event). A serious illness or injury doesn't count as a qualifying event. So maintaining continuous health insurance coverage is always in your best interest.
Source: https://www.verywellhealth.com/obamacare-penalty-for-being-uninsured-4132434
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