WPS Health Insurance Blog

How do you feel about the individual mandate?

Posted by Ryan Kanable

Sep 12, 2013 9:22:00 AM

How do you feel about the individual mandate?Many aspects of the Affordable Care Act (ACA) are popular. Some people like the basic fairness of women paying the same premiums as men and sick people not being denied coverage for pre-existing conditions. But the individual responsibility clause, also called the individual mandate, is often misunderstood. It’s important to know that without it, the chances of the ACA working as it was intended are slim.

The mandate, which goes into full effect in 2014, requires almost everyone in the U.S. to have health insurance or pay a penalty tax. The idea is to get as many people as possible—young, old, men, women, healthy, sick—into the insurance pool so that the risk is manageable and coverage can remain affordable.

Without this clause, the balance needed to provide affordable health insurance for everyone takes an unfavorable tip. If healthy people choose to skip getting insurance and only sick people seek coverage, then insurance costs could enter a so-called “death spiral” and spin out of control as insurers are forced to raise premiums repeatedly to pay claims for the unhealthy people holding policies.

The good news

More than half of Americans who have private insurance are covered through their employers. A total of 64% of people had private insurance in 2010, while 31% had government health insurance, such as Medicare and Medicaid. This means that most people have coverage and don’t need to worry about the individual responsibility aspect of ACA at all.

The people most affected by the individual responsibility clause are those who are not insured. In 2010, about 16% of Americans carried no insurance. Those 49.9 million people are the ones who need to get coverage or risk paying the penalty tax.

The bad news

If you choose to go without insurance, you may have to pay a penalty tax. The Internal Revenue Service (IRS) is charged with collecting it from you. When you file your taxes, if you have a gap in coverage for a continuous three-month period or more during the previous year, the IRS will take the penalty tax money out of your tax refund or add it to what you owe.

What the penalty tax might cost you depends on the year. The chart below lists the annual totals that may be assessed. However, you may be able to avoid the penalty tax if you meet certain requirements.

Penalty tax amounts

2014

2015

2016 and beyond

$95 per adult and $47.50 per child (up to $285 per family) OR 1.0% of family income, whichever is greater

$325 per adult and $162.50 per child (up to $975 per family) OR 2.0% of family income, whichever is greater

$695 per adult and $347.50 per child (up to $2,085 per family) OR 2.5% of family income, whichever is greater

The other penalty is being uninsured and risking a serious, costly health problem.

For more on the individual mandate and other ACA-related topics, watch our individual mandate video, take a look at our Learning Center or check out our free brochure, 9 Things You Need to Know About the Affordable Care Act.

Topics: health insurance