What Is the Individual Mandate?
In health insurance, the individual mandate, or shared responsibility payments refer to the penalty or fee charged to people who can afford to buy health insurance but choose not to buy it.
When the Affordable Care Act was created, the individual mandate was devised to help ensure that everyone who could afford health insurance would participate in health insurance pools. Individuals who are able to purchase health insurance but fail to do so will be penalized with a fee for any month that they, their spouse, or their children don't have a policy that provides minimum essential coverage.
Paying the Penalty
People are not required to pay the government a fee the way that they might a parking ticket. Instead, the fee is paid when someone files their federal tax return. It is added to someone's tax obligation, and it may reduce the amount of their tax refund if they have one.
The fee amount is either 2.5% of a person's annual income, but not more than the cost of the average Bronze plan through the Health Insurance Marketplace, or a per-person charge of $695 per adult and $347.50 per child under 18 years old. You end up paying whichever amount is higher.
There are two different ways the individual mandate fee is calculated:
- You pay a penalty equal to 2.5% of your annual household income, but not more than the cost of the average Bronze plan sold through the Health Insurance Marketplace. As of 2016, the average Bronze plan cost approximately $2,243.
- You pay a per-person charge of $695 per adult and $347.50 per child under 18 years old. The per person charge is capped at $2,085 for the entire family.
After the different penalty options are calculated, you will end up paying the higher costing option. You can also get an estimation of your penalty cost with this easy to use tool!
Why Is There an Individual Mandate?
The individual mandate was created due to a concern that if only unhealthy individuals participated in the Health Insurance Marketplace, it would cause problems. One of the biggest potential problems that could arise from a large pool of unhealthy participants is that it would drive up the cost of premiums and make health insurance less affordable.
Pros and Cons of the Individual Mandate
Aside from helping ensure that healthcare-risk pools were balanced, the individual mandate was designed to ensure that people would have coverage when they needed it. Many young, healthy people assume that they don't need health insurance until they end up in an accident or develop an unexpected medical condition. Without health insurance, it may be a struggle to pay medical bills, so mandating even basic coverage helps prevent financial ruin.
Some people feel that being required to purchase health insurance is a violation of their rights. Additionally, some people may struggle to find an affordable health insurance plan that meets the government's requirements, and if they choose to forgo purchasing health insurance, they will pay a hefty fine.
Individual Mandate Exemptions
People may be exempt from a fine for not purchasing health insurance if they meet certain criteria. Some common exemptions include if someone doesn't file taxes because their income is below the federal threshold, if the cost of health insurance would exceed 8.13% of household income or if a person was denied Medicaid or CHIP (Children’s Health Insurance Program).