Reform Alert - News from the Blues' Office of National Health Reform

Individual mandate will require people to buy health insurance or face financial penalty

Aug. 09, 2011

Most U.S. residents will be required to obtain health insurance or face a financial penalty for being uninsured under the individual mandate, a key provision of the Affordable Care Act that starts in 2014.

The penalty phases up to full implementation in 2016 and is indexed by inflation in following years. The penalties listed below are divided by 12 to calculate each monthly penalty for lacking coverage and are the greater of:

  • 2014: $95 per person (capped at $285 per family) or 1 percent of household income 
  • 2015: $325 (capped at $975) or 2 percent of household income 
  • 2016: $695 (capped at $2,085) or 2.5 percent of household income 
  • 2017 and beyond: The $695 penalty is indexed for a cost-of-living adjustment and must be rounded to the next lowest multiple of $50. For families, the flat-dollar penalty is capped at three times the indexed value for an individual. For example, if in 2017 the penalty is $700, the capped amount would be $2,100. As in 2016, the individual mandate penalty is the greater of the flat-dollar amount or 2.5 percent of household income 

Individuals under the provision will be required to have minimum essential coverage, which generally includes any coverage offered in the individual or small or large group markets and includes Medicare, Medicaid, Children's Health Insurance Program, military benefits and Peace Corps coverage.

Medicare supplemental plans and excepted benefits, such as limited-scope dental or vision offered under a separate policy, certificate or contract of insurance, do not qualify. 

In 2016, the Congressional Budget Office estimates that 32 million people will have health coverage who otherwise would not have received it under pre-ACA law. However, about 21 million nonelderly Americans will still be uninsured in 2016, with most of them not subject to the individual mandate penalty. Exclusions will be allowed for people who cannot afford coverage, certain religious conscience exemptions, illegal immigrants and people who are incarcerated.

About 4 million people are projected to pay a penalty for being uninsured in 2016. The CBO and Joint Committee on Taxation estimate that collections will total about $4 billion per year from 2017 to 2019.

Modeled after a similar mandate in effect in Massachusetts, the individual mandate is based on the premise that expanding coverage to more Americans will spread costs more equally and lower average costs in the insurance pool, since there would be fewer uninsured people whose health care costs are borne by people who have health insurance.

This provision has been at the heart of legal challenges filed by several state governments. Lower federal courts have so far nearly split over the constitutionality of the individual mandate, and the only federal appellate court that has reviewed the issue to date has upheld the mandate.

Review by the U.S. Supreme Court has been requested.

The information on this website is based on BCBSM's review of the national health care reform legislation and is not intended to impart legal advice. Interpretations of the reform legislation vary, and efforts will be made to present and update accurate information. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Analysis is ongoing and additional guidance is also anticipated from the Department of Health and Human Services. Additionally, some reform regulations may differ for particular members enrolled in certain programs such as the Federal Employee Program, and those members are encouraged to consult with their benefit administrators for specific details.

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