Is there still a penalty for being uninsured?
- The federal individual mandate penalty was eliminated at the end of 2018.
- There is a penalty in New Jersey, DC, Massachusetts, California, and Rhode Island.
- Vermont enacted a mandate that took effect in 2020, but there is no penalty for non-compliance.
- Maryland lawmakers also removed mandate penalty language from a 2019 bill before it passed.
Q. Is there still a penalty for being uninsured?
A. When the Affordable Care Act was written, lawmakers knew that it would be essential to get healthy people enrolled in coverage, since insurance only works if there are enough low-cost enrollees to balance out the sicker, higher-cost enrollees. So the law included an individual mandate, otherwise known as the shared responsibility provision.
This controversial provision stipulated that people who didn’t have minimum essential coverage would be subject to a tax penalty unless they were exempt from the shared responsibility provision.
But that tax penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act of 2017. Technically, the individual mandate itself is still in effect, but there’s no longer a penalty to enforce it.
(The continued existence of the mandate – but without the penalty – is the crux of the California v. Texas lawsuit, in which 18 states are challenging the constitutionality of the mandate without the penalty, and arguing that the entire ACA should be overturned if the mandate is unconstitutional. A judge ruled in December 2018 that the ACA should indeed be overturned, and Trump Administration agrees. The case was appealed to the Fifth Circuit and oral arguments were heard in July 2019. The ruling was issued in late 2019, essentially just kicking the can down the road: The appeal court panel agreed with the lower court that the individual mandate is unconstitutional but remanded the case back to the lower court to determine which aspects of the ACA should be overturned. The case was then heard by the Supreme Court in the fall of 2020, with a ruling expected in the spring of 2021. But with the Biden administration and a very slim Democratic majority in Congress, it may be possible to make the case moot before the ruling is issued.)
DC, Massachusetts, New Jersey, California, and Rhode Island have penalties for being uninsured
Although the IRS is not penalizing people who are uninsured in 2019 and beyond, states still have the option to do so. A handful of states have their own individual mandates and penalties for non-compliance:
- Massachusetts implemented an individual mandate and penalty in 2006, and it continues to be in effect (people who were uninsured in Massachusetts between 2014 and 2018 didn’t have to pay both the state and federal penalties, but now that there’s no federal penalty, the state’s penalty applies just like it did prior to 2014). The Massachusetts penalty only applies to adults, and the amount of the penalty is based on the person’s income and the cost of health plans available via the Massachusetts health insurance exchange (here are the details for penalty amounts in Massachusetts in 2020).
- The District of Columbia implemented an individual mandate and penalty that took effect in January 2019. The penalty amounts are based on the amounts that applied under the federal penalty in 2018 (a flat $695 per adult — half that for a child — or 2.5 percent of income, whichever is higher), although the maximum penalty under the percentage of income calculation is based on the average cost of a bronze plan in DC, as opposed to the average nationwide cost of a bronze plan.
- New Jersey also implemented an individual mandate and penalty that took effect in January 2019. The penalty amounts also mirror the previous federal penalty, but the maximum penalty under the percentage of income calculation is based on the average cost of a bronze plan in New Jersey. The state is using penalty revenue to help fund its new reinsurance program.
- California enacted legislation in 2019 that created an individual mandate starting in 2020, with a penalty for non-compliance. California also created a new state-based premium subsidy to help make coverage more affordable.
- Rhode Island also implemented an individual mandate effective in 2020, with a penalty for non-compliance. The revenue generated from the penalty is used to help fund the state’s new reinsurance program. Both the individual mandate and the reinsurance program will have a stabilizing effect on Rhode Island’s individual market.
Vermont enacted a mandate but opted not to impose any penalty for non-compliance
Vermont enacted legislation in 2018 to create a state-based individual mandate, but they scheduled it to take effect in 2020, instead of 2019, as the penalty details weren’t included in the 2018 legislation and were left instead for lawmakers to work out during the 2019 session. But the penalty language was ultimately stripped out of the 2019 legislation (H.524) and the version that passed did not include any penalty. So although Vermont does technically have an individual mandate as of 2020, there will not be a penalty associated with non-compliance (ie, essentially the same thing that applies at the federal level).
Maryland also removed penalty language from 2019 legislation
Maryland enacted HB814/SB802 in 2019. The legislation initially included an individual mandate and penalty that would have taken effect in 2021. But that portion of the bill was removed before passage, despite support from insurers and the Maryland Hospital Association, and the final version did not include any of the original mandate penalty language. Instead, the new law creates an “easy enrollment health insurance program” that will use tax return data to identify people who are uninsured and interested in obtaining health coverage, and then connect them with the Maryland health insurance exchange (more details here, in the fiscal note).
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.
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