Do you want to know more about Obamacare’s individual mandate? Read on and learn some essential facts.
What Is The Individual Mandate?
Under the Affordable Care Act, the majority of individuals are required to have health insurance coverage or pay tax penalties for non-compliance. It doesn’t matter whether insurance is acquired through private or the health exchange, provided that it maintains minimum essential coverage for the primary insurer and their dependents. The only time when individual mandate doesn’t apply is when an individual is exempted, based on the exemptions prescribed in Obamacare’s individual mandate.
When Was The Individual Mandate Implemented?
The law went into effect in 2014. During this tax year, individuals are required to report on the status of their health coverage when they file their federal tax returns. They should maintain minimum essential coverage by then or pay for tax penalties. It is also during this time that they report about any exemptions that they are qualified with.
What Is Minimum Essential Coverage?
In a nutshell, minimum essential coverage includes most types of private insurance and government sponsored coverage. These include:
- Medicare Part A
- Medicare Advantage
- Medicaid full benefit coverage
- Children’s Health Insurance Program (CHIP)
- Other coverage by TRICARE that is not under the Limited Benefit Programs
- Veterans Affairs Health Care Programs
- Peace Corps Programs
- Unappropriated Fund Health Benefits Program of the Department of Defense
- Individual Market Health Insurance
- Employer Sponsored Health Insurance
- Grandfathered Health Plans
- Qualified Health Plans Offered Inside and Outside Exchanges
- Refugee Medical Assistance Supported by the Administration for Children and Families Group
- Health Plan Provided Through Insurance Regulated by a Foreign Government
What Are Tax Penalty For Not Being Insured?
Unless you are exempted, you will be fined for every month that you are uninsured. How much you pay depends on the household income or individual penalties at a flat dollar amount, whichever is greater. For the purpose of Obamacare, a percentage of applicable income refers to the amount that exceeds an individual’s household income’s tax filing threshold for a particular tax year. A flat dollar amount, on the other hand, is based on each taxpayer and any dependents that are uninsured, but which amount is reduced by one half for uninsured dependents under the age of 18. Regardless of the number of uninsured household members, the total penalty for an entire family is capped at 300% of the annual flat dollar amount.
For the tax year 2015, the percentage of applicable income is 2% and the flat dollar amount is $325. In 2016 it is 2.5% or $695. In 2017 and beyond, it is 2.5% or $695 adjusted for inflation.
How Are Penalties Paid?
Any tax penalties that must be settled will be included in the federal income tax return for the taxable year. Joint returns, will be considered jointly liable for paying the tax penalties. In the event that a tax payer fails to pay the penalties, even after receiving a notice from IRS, the penalties will be deducted from the tax refund.
What Are Exemptions?
Certain individuals need not comply with the individual mandate or pay the tax penalties, provided that they meet certain exemptions.
- You qualify for the religious conscience exemption if you’re a member of a religious sect or division recognized by the IRS to be opposed to any form of health insurance, whether private or public.
- Hardship exemption is when you have no way of obtaining coverage given your circumstances, but you could be eligible for catastrophic coverage.
- You are a member of a health care sharing ministry.
- You are a member of an Indian tribe eligible for special programs and services.
- Your household income is so low that you cannot afford to obtain health plan, except for a catastrophic coverage.
- You are uninsured within the coverage gap or the first 3 months in a calendar year. Any other uninsured months after the coverage gap will be subject to penalties.
- Your household income is less than the federal income taxes filing threshold for a particular tax year.
- You lived abroad for at least 330 days within a 12-month period.
What Is a Hardship Exemptions?
There are certain circumstances where hardship exemptions may apply.
- You are going through financial or domestic problems that keep you from obtaining coverage or will lead to deprivation of food, shelter or other necessities if you purchase coverage.
- Your projected household income is not enough to purchase coverage.
- You are not qualified for Medicaid because you live in a state where ACA expansion is not carried out.
- The aggregate cost of health insurance between two or more members in the family exceeds 8% of the household income.
- You are exempted based on being a member of an Indian tribe or that you’re only eligible through the Indian Health Service.
How Do You Claim An Exemption?
Except for individuals who live abroad for more than 330 days, people who are exempted based on their financial status, affiliations or characteristics, must obtain a certification of exemption. Claim of exemption can be done through the health insurance exchange or during tax filing process. Exemption claims have to be filed every tax year, except for prospective or retrospective exemptions where continuous certification applies. These include Religious Conscience and Indian Tribe Membership exemptions.
For your guidance, know where exemption claims can be made.
- Religious conscience exemptions can be made only through the health exchange.
- Affordability exemption, unlawful resident, and coverage gap are claimed only through tax filing.
- Hardship exemptions, healthcare sharing ministry membership, Indian tribe membership, and incarceration can be claimed through both exchange and tax filing.
What Are Potential Financial Assistance Under Individual Mandate?
Through Obamacare, individuals will be able to meet the health insurance requirement through financial assistance provided, in the event that they are below the Federal Poverty Line (FPL) or that their income is low. The law also encouraged states to expand Medicaid programs to include individuals who are non-pregnant and non-elderly, but with income below the 133% FPL. Those who do not qualify for Medicaid can also avail of subsidies, if they obtain coverage through the health exchange. In this arrangement, they will receive help in paying for their premiums and cost-sharing requirements.