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Vorys Health Care Advisors

What is the individual mandate?

Posted in Affordable Care Act, Health Care Reform

In order to demystify the Affordable Care Act (ACA) so that consumers can get the most out of it, we should start with the provision most immediately impactful to many Americans – the individual mandate.

The ACA requires that most individuals have health insurance beginning in 2014.  Those who do not will be required to pay a penalty.  (Note that this penalty is different than the penalty employers will be required to pay if they do not offer affordable insurance to their employees beginning in 2015, as described in our last post.)

An individual can fulfill this insurance “mandate” in a variety of ways—

  1. Have employer-sponsored insurance,
  2. Be covered by Medicaid or the Children’s Health Insurance Program,
  3. Be covered by TRICARE,
  4. Be covered by the veteran’s health program,
  5. Be covered by Medicare, or
  6. Purchase insurance in the health insurance marketplace.

Additionally, individuals may meet the mandate to have health insurance in more than one way (e.g., a person might have access to employer-sponsored insurance and be eligible for Medicaid).

The individual mandate does not apply to individuals that —

  • Are part of a religion opposed to acceptance of benefits from a health insurance policy
  • Are undocumented immigrants
  • Are incarcerated
  • Are members of an Indian tribe
  • Have family income below the threshold for filing a tax return
  • Have to pay more than 8% of their income for health insurance, after taking into account any employer contributions or tax credits

Additionally, in a final rule published by the U. S. Department of Health and Human Services (HHS), HHS indicated that it will exempt individuals who cannot be eligible for Medicaid because the state chooses not to expand Medicaid to individuals earning up to 138% of the federal poverty guideline ($15,856 for an individual and $32,499 for a family of four).  Thus, for states that choose not to expand Medicaid, adults at or below 138% of the federal poverty guideline will not be subject to the individual mandate.  (We’ll talk more about the Medicaid expansion in our next post.)

Here are some fast facts about who will be impacted by the mandate and how—

  • Most people – 80% of the population, by at least one estimation – already have insurance through an employer, COBRA or retiree coverage, Medicaid, the Children’s Health Insurance Program, Medicare, TRICARE, or the Veteran’s Administration.
  • It has been estimated that 32 million people will gain insurance under the ACA’s mandate.
  • The Congressional Budget Office estimates, however, that four million Americans will choose to pay a penalty instead of buying health insurance. Many of these people are likely to be young and relatively healthy individuals who feel like they can go without insurance.
  • The federal government will collect the penalties by withholding money from an individual’s tax refund.  If an individual does not file a tax return, there is not much the federal government can do to collect the penalty.
  • In 2016, the first year the penalty is fully in place, it will be $695 a year or 2.5% of an individual’s income, whichever is higher.

In our next post, we will build on this fundamental information and explore the various insurance options available to consumers in 2014.