Is There Still an Obamacare Penalty for Being Uninsured in 2017?

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Seven years after it was enacted, most parts of the Affordable Care Act (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, remains an unpopular provision of the law. The mandate went into effect in 2014 and requires all Americans to maintain health insurance coverage unless they're eligible for an exemption. There's a penalty assessed by the IRS on people who don't maintain coverage and who aren't eligible for an exemption.

The Penalty Started Out Small But Has Grown Over Time

  • In 2014, the penalty was $95 per uninsured adult (half that amount per child), up to $285 per family, OR 1 percent of household income above the tax filing threshold.
  • The IRS reported that among tax filers who owed a penalty on 2015 returns, the average penalty was $210.
  • In 2015, the penalty was $325 per uninsured adult (half that amount per child), up to $975 per family, OR 2 percent of household income above the tax filing threshold.
  • The IRS reported that among tax filers who owed a penalty on 2015 returns, the average penalty was $470.
  • In 2016, the penalty was $695 per uninsured adult (half that amount per child), up to $2,085 per family, OR 2.5 percent of household income above the tax filing threshold.
  • The 2.5 percent of income penalty is slated to remain level in 2017 and beyond, but the flat-rate penalty is adjusted annually for inflation, starting in 2017. However, the IRS announced in late 2016 that the inflation adjustment for 2017 would be zero; the flat-rate penalty for 2017 has thus remained at $695 per adult, half that amount for children, up to $2,085 for a family.

    Is the Penalty Still Being Assessed Now That Trump Is in Office?

    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 early May, but if the senate passes an ACA-repeal bill, it's likely to be quite different from the House version (the Senate has said that they're writing their own bill, rather than amending the House bill). So from a legislative perspective, nothing has changed.

    On his first day in office, Trump issued an executive order aimed at "minimizing the economic burden" of the ACA. It essentially instructed federal agencies to be as lenient as possible in their enforcement of ACA taxes and penalties.

    The penalty itself is specified in the text of the ACA, meaning that legislation (as opposed to just regulatory action by HHS or the IRS) would be necessary in order to change or eliminate the penalty.

    But the IRS can now be more lenient in terms of granting exemptions from the penalty. And they quietly made a change in early February, noting that they would continue to accept "silent returns" for 2017. Here's what that means:

    • On line 61 of Form 1040, the IRS asks all tax filers whether or not they had health insurance coverage throughout the year (this has been the case since 2014). Most Americans do have health insurance, and can just check the box that says "full year coverage" and carry on with the rest of the return. But for those who didn't have full-year coverage, the process is a bit more complex: they have to either attach Form 8965 for an exemption, or calculate the applicable penalty.
    • For 2014 and 2015 tax years, the IRS did not reject returns when line 61 was left blank (ie, a "silent" return). Most tax filers completed line 61 anyway (about 90 percent of Americans have health insurance, so this isn't really an issue for most filers, and millions of tax filers did have penalty assessments for 2014 and 2015).
    • For 2016 tax returns, however, the IRS had intended to stop accepting silent returns. They were going to begin rejecting returns that didn't indicate whether the tax filer had health insurance during the year (and although the IRS does not have their normal enforcement authority for the ACA penalty, it's always illegal to lie to the IRS).
    • The IRS has reversed course, however, and will continue to accept silent returns for the 2016 tax year. They noted that the change is a direct result of Trump's executive order.

    So although there has been considerable confusion in terms of what's going on with 2016 tax returns under the Trump Administration, the filing process with regards to the individual mandate is the same as it was for 2014 and 2015. The penalty itself is larger than it was in prior years, though, since the penalty amount increased for 2016.

    Will Congress Eliminate the Individual Mandate Penalty?

    Lawmakers have introduced a variety of health care reform bills during the 2017 legislative session, including the American Health Care Act (AHCA). The AHCA passed the House on May 4, but its future in the Senate is uncertain.

    If the House version of the AHCA is enacted, however, it would eliminate the individual mandate penalty back to the beginning of 2016. People who paid the penalty for being uninsured in 2016 would receive a refund, and people would be able to drop their 2017 coverage mid-year without facing a penalty.

    The Congressional Budget Office projected that 1 million people—all in the individual market—will drop their health insurance coverage mid-2017 if the AHCA is enacted, due to the elimination of the individual mandate penalty; the House did not wait for the CBO to score their bill before voting on it, and the CBO analysis came three weeks after the AHCA passed the House.

    It's important to note that the House version of the AHCA would replace the individual mandate penalty with a different mechanism to encourage people to maintain coverage. If states opt to keep the regular rules laid out in the new law, the individual mandate penalty would be replaced by a 30 percent premium increase for one year for people who purchase individual health insurance after having a gap in coverage (63 days or longer) during the 12 months prior to enrolling. The higher premiums would start to take effect for people who enroll after the conclusion of open enrollment for 2018 coverage (ie, during a special enrollment period in 2018, and for all enrollments thereafter). The higher premiums would apply to anyone with a gap in coverage, regardless of health status.

    States would also have an option to go a different route, though. They could seek a waiver that would allow health insurance companies to use an applicant's medical history to set premiums if the person had a gap in coverage prior to enrolling. So people seeking individual market coverage after having a gap in coverage during the prior year would pay higher premiums only if they have pre-existing conditions. This is part of the MacArthur Amendment, added to the AHCA in order to gain support from the ultra-conservative House Freedom Caucus. It has been a very controversial aspect of the AHCA, and the CBO estimates that one-sixth of the population lives in areas of the country where individual insurance premiums would become unaffordable for people with pre-existing conditions and a gap in coverage.

    A Note From Verywell

    The ACA's individual mandate is unpopular, but necessary if individual market coverage is guaranteed-issue. 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 skyrocketing premiums (the limited enrollment periods are the other part of the incentive to ensure that people maintain coverage year-round).

    Nothing is certain at the moment, and we just don't know what the future holds in terms of the ACA. But the individual mandate is still in place and will remain in place unless legislation is enacted to repeal it. The Trump Administration cannot eliminate the individual mandate penalty unilaterally.

    And we're all still required to maintain health insurance in 2017; nothing has changed about that for the time being. Even if the individual mandate is ultimately removed, it's wise to have health insurance. Not having coverage means that health care for a serious ailment could be unaffordable or completely inaccessible.

    And the House version of the AHCA allows states to seek waivers that would essentially make coverage unaffordable for people with pre-existing conditions and a gap in coverage. Since medical conditions can arise at any time (and are considered a pre-existing condition if they arise while you're uninsured), it would be unwise to go without coverage in that sort of regulatory environment.

    Sources:

    Internal Revenue Service, Individual Share Responsibility Provision, updated February 2017.

    Internal Revenue Service, Revenue Procedure 2016-55.

    Kaiser Family Foundation, Summary of the American Health Care Act, March 2017.

    Koskinen, J., Internal Revenue Service, Letter to Congress on preliminary results from the 2015 filing season related to Affordable Care Act provisions as of October 2015. January 8, 2016.

    Koskinen, J., Internal Revenue Service, Letter to Congress on preliminary results from the 2015 filing season related to Affordable Care Act provisions. January 9, 2017.

    WhiteHouse.gov, Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal, January 20, 2017.

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