The penalty associated with the Affordable Care Act's (ACA's) individual mandate — also known as the act's individual shared responsibility provision — has been reduced to $0 beginning Jan. 1, 2019. This occurs as part of the tax reform bill signed into law by President Trump on Dec. 22, 2017. The change essentially repeals the ACA's individual shared responsibility provision.
Under the individual mandate, the IRS requires self-insured employers and insurers to report employees covered by their plan or face penalties. Self-insured employers report this information for individuals on IRS Form 1095-C or Form 1095-B; this requirement is unchanged under tax reform. Other provisions in the ACA, including the employer shared responsibility provision, are also unaffected.
Some states acting to establish their own individual mandates
Some states are working to create their own version of an individual mandate in state law to preserve its intent: keeping up the numbers of people covered by health insurance. States may consider using state innovation waivers allowed by the ACA to reshape their health care markets to support their populations.
For example, the New Jersey legislature sent a bill to Gov. Phil Murphy on April 18 to require those without insurance pay a fine equal to 2.5 percent of their household income or $695 per adult and $347 per child, whichever is greater. Essentially this would maintain the penalty under the ACA that will be reduced to $0 in 2019 by the federal government. Although, there will be slight variations to structure and implementation as the mandate would be administered by the New Jersey state government.
Impact of eliminating the federal individual mandate penalty
The Congressional Budget Office has estimated that negating the individual mandate penalty would save $338 billion over 10 years, but cause more than 13 million people to lose health insurance by 2027. Premiums in the individual market would surge an average of 10 percent a year as more and more healthy individuals chose to go without coverage. Removing the individual mandate weakens the incentive for healthy people to stay in the individual market. They can purchase coverage the following year without consequence should they need medical care, since the ACA does not allow insurers to deny coverage based on pre-existing health conditions.
Indirect impacts of the mandate's penalty repeal to the cost of insurance include:
- Higher hospital costs for those with insurance, as people without coverage seek care in emergency rooms. Hospitals will pass on those unreimbursed expenses to the insured population.
- Some decline in the demand for employer-sponsored insurance, as younger, healthier workers don't see the need for coverage.
In general, people earning less than 400 percent of the federal poverty level will see no change to their out-of-pocket expenses from the expiration of the individual mandate, even if they buy coverage on the individual market. That's because the government pays more money in tax credits as premiums go up.
Your location determines whether an individual mandate applies
As some states make their own decisions about the individual mandate, the status of the ACA remains dynamic. Geography will determine businesses' and individuals' experience with health care policy. The rules may require employers to support various coverage structures, depending on their location(s).