Health Insurance Mandate

Health Reform Legislation Includes a Mandate for Health Coverage

Health reform includes a health insurance mandate. zorani/iStockphoto

One of the more controversial parts of the Affordable Care Act is the issue of a health insurance mandate – the requirement that since 2014, all Americans must have healthcare coverage.

The vast majority of people in this country have health insurance through work or a public plan such as Medicare and Medicaid, and that was already the case prior to 2014, when the  individual mandate took effect. The mandate, therefore, targets the portion of Americans who did not have health insurance prior to 2014, and those who have remained uninsured in the ensuing years.

Must I Have Health Insurance?

Since 2014 all U.S. citizens and legal residents have been required to have "minimum essential coverage", which includes coverage through your job, a government plan (such as Medicaid, Medicare, Veterans Administration, and the Armed Services), or a health plan you have purchased on your own. But it does not include "excepted benefits" like short-term health insurance, accident supplements, or critical illness plans.

If you don’t have health insurance, you will pay a tax penalty that was phased in starting with the 2014 coverage year (assessed when people filed their taxes in early 2015). The minimum penalty in 2014 was $95, but the IRS reported that among tax filers who owed the penalty for 2014, the average penalty was about $210.

The minimum penalty increased in 2015 and again in 2016. For people who were uninsured in 2016, the minimum penalty is $695, but the Kaiser Family Foundation estimated that average penalties would be almost $1,000.

The $695 flat rate minimum (which can be up to three times that much if multiple family members are uninsured) will be indexed for inflation each year, starting in 2017. For higher-income households, the penalty is 2.5 percent of income, which will continue to be the case (you pay whichever penalty is higher—the flat rate, or the percentage of income).

Are Exemptions or Help Available?

You may be eligible for an exemption or you may be able to get help paying for health insurance it if your income is low. The IRS reported that while 7.9 million tax filers owed a penalty for being uninsured in 2014, another 12.4 million tax filers were exempt from the penalty, despite being uninsured.

Exemptions are granted for the following:

  • you have a financial hardship
  • you have a genuine religious objection
  • you are an American Indian
  • you were without health coverage for less than three months (a prorated penalty applies if you were uninsured for three months or longer)
  • you are an undocumented immigrant
  • you are in prison
  • the lowest cost health plan available in your area exceeds 8 percent of your income (indexed for inflation; in 2017, it's 8.16 percent).
  • your income is below the tax filing threshold
  • you're a member of a health care sharing ministry
  • you live abroad for at least 330 days in a 12 month period
  • you have short-term coverage through AmeriCorps, VISTA, or NCCC.
  • you would be eligible for Medicaid under the ACA, but are not eligible because your state has not expanded Medicaid.

Making Coverage Affordable

Starting in 2014, Medicaid was expanded under the ACA to households with incomes up to 138% of the federal poverty level (roughly $16,400 for a single individual in 2016). 

But the Supreme Court ruled that Medicaid expansion would be optional, and as of late 2016, there are 19 states that have not yet expanded Medicaid. In 18 of those states, there's a coverage gap: People with income below the poverty level are not eligible for premium subsidies in the exchange or Medicaid, which makes coverage essentially out of reach. Individuals in this situation are not assessed a tax penalty for being uninsured, however, as the IRS has created an exemption for them.

A Dr. Mike definition: Federal Poverty Level - At the beginning of each year, the federal government releases an “official” income level for poverty. This amount is the minimum yearly income that an individual or family needs to be able to provide for basic needs such as food and housing. The actual dollar amount changes each year and varies based on the number of people in a family. The Federal Poverty Level is used to determine someone’s eligibility for government programs such as Medicaid.

If your yearly income is higher than 138% of the federal poverty level but less than 400% of the poverty level ( for 2017 coverage, that's about $47,500 for an individual), you will get a tax credit to help you pay your health plan’s premiums. And if your income doesn't exceed 250 percent of the poverty level, there's also a subsidy available to lower your out-of-pocket expenses.

The subsidy for out-of-pocket costs is paid directly to your health insurer. But the premium subsidy can either be paid directly to your insurer, or you can opt to claim it on your tax return. It's a refundable tax credit, so you'll receive it even if you do not owe any income taxes. 

What If I Still Can’t Afford Coverage?

There may be some people who cannot afford to pay for health insurance premiums even with a subsidy, or tax rebate. If this is your situation you can ask for an exemption based on financial hardship. If the cost of the lowest-priced Bronze plan in your area is more than 8.16 percent of your income in 2017 (after the subsidy, if applicable, is taken into consideration), you'll be eligible for an exemption based on coverage being unaffordable.

If I Buy Insurance, Can a Health Plan Turn Me Down If I'm Sick?

No! All individual market plans became guaranteed-issue as of January 2014. Enrollment is limited to the annual open enrollment window that starts each fall on November 1, or a special enrollment period triggered by a qualifying event, but insurers no longer ask about medical history when you apply for coverage. Pre-existing conditions are covered on all plans now, except grandfathered individual market plans.

Do I Have to Pay Higher Taxes Because of Health Reform?

Effective January 1, 2013, individuals who earn more than $200,000 a year or couples earning more than $250,000 a year – about 2% of Americans – began to see an increase in their income-related taxes, including:

  • An extra charge of 0.9% for Medicare Part A hospital insurance, an increase from 1.45% to 2.35% – for example, if you are an affluent family with an annual income of $350,000, you're paying an additional $900 a year in Medicare taxes.
  • A 3.8% Medicare tax on unearned income such as capital gains, dividends and royalties. Previously, Medicare taxes were only assessed on earned income, such as salary from your job or revenue from self-employment.

However, there are some tax-related issues that affect a greater number of people. These include:

  • The tax penalty for not having health insurance that took effect in 2014.
  • Some changes to how you manage a health savings account (HSA). Since January 1, 2011, you can no longer be reimbursed on a tax-free basis for the costs of over-the-counter medications. And, the tax on distributions from your HSA (prior to age 65) that is not used for qualified medical expenses has increased from 10% to 20%.
  • If you itemize income tax deductions on Schedule A, effective January 1, 2013 the threshold for the itemized deduction for your medical expenses increased from 7.5% of adjusted gross income to 10% of adjusted gross income. This increase was waived if you are 65 or older for tax years 2013 through 2016, but applies to everyone starting in 2017. So for example, if your adjusted gross income is $80,000, you can only deduct medical expenses that exceed $8,000, whereas in the past, you would have been able to deduct medical expenses that exceeded $6,000.

Additionally, there are some taxes that are not directly aimed at you that could have an effect on you. For example, fees imposed on pharmaceutical and health insurance companies could increase the cost of their products, which may be passed onto you. Interestingly, tanning bed services are now subject to a 10 percent excise tax, which may be may be good for health—you’re better off getting some natural sunshine!

Updated by Louise Norris.
 

Sources:

Healthcare.gov. Read the Affordable Care Act.

Healthcare.gov. Types of Health Insurance That Count as Coverage.

Internal Revenue Service. Excise Tax on Indoor Tanning Services, Frequently Asked Questions.

Internal Revenue Service: Individual Shared Responsibility Provision: Exemptions—Claiming or Reporting.

Koskinen, John, Internal Revenue Service, Preliminary results from the 2015 filing season related to Affordable Care Act provisions as of October 2015. January 8, 2016.

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