What is the Individual Mandate under ACA?
The individual mandate requires most individuals to have minimum essential coverage or pay a penalty beginning in 2014. The penalty is now called a “shared responsibility payment.” Some individuals may qualify for an exemption so they will not be required to have coverage or pay a penalty.
What qualifies as minimum essential coverage? There are many types of that qualify, for most people this includes employer sponsored health coverage, an individual plan or Medicare. If you've had coverage for one day in that month, then you are considered covered for the entire month. You can have a gap in coverage of up to 3 months without triggering a penalty. If you currently have an individual insurance policy, you may be allowed to keep it. Starting in 2014, individual policies may not have an out of pocket maximum, including the deductible, greater than is allowed for a Health Savings Account eligible plans (in 2013 that is $6,250 individual/$12,000 family).
How will penalties be determined and paid? The first penalties will be due when individuals file their 2014 tax returns in 2015. The penalties for 2014 through 2016 are noted below. Beginning in 2017, penalties will increase based on the cost of living. If your net income
2014: Greater of $95 per adult and $47.50 per child under age 18 (maximum of $285 per family) or 1% of net income 2015: Greater of $325 per adult and $162.50 per child under age 18 (maximum of $975 per family) or 2% of net income 2016: Greater of $695 per adult and $347.50 per child under age 18 (maximum of $2,085 per family) or 2.5% of net income
If the penalty applies for less than a full calendar year, the penalty will be 1/12 of the annual amount per month without coverage.
Are there any exceptions? Yes, there are several. These are the most common three. (1) If you cannot afford insurance offered by your employer or the Marketplace (Covered California or other Federal Exchange). Insurance is deemed unaffordable if the contribution is more than 8% of household income. (2) Taxpayers with income below the tax filing threshold. (3) With an exemption approved by the Marketplace for several reasons such as hardship, religious reasons, native americans, and non-US citizenship.
Do I have to purchase from the Health Exchange (also called Insurance Marketplace)? Yes, if you want and are eligible for federal subsidies. If you aren't, then there is no advantage to enrolling through the Marketplace. California's exchange is called Covered California. State law has been passed that mandates that insurance premiums on the policies within the exchange have to be exactly the same as policies purchased directly from carriers. The advantage of the exchange is that they will work with low income individuals to verify if they are eligible for any tax subsidies. They also hope to make it simpler for people to move between employer coverage and individual coverage as long as both are purchased on their platform. The advantage of purchasing direct from the insurers is that they will have more benefit plan options. We're still waiting on a considerable amount of detail around rates and benefit options.
