- Get health insurance
- Pay the mandate penalty
- Avoid the mandate by showing you are exempt from it
Let’s first break the mandate into two pieces, one for individuals and families, and the second for businesses.
Mandate For Families And Individuals
The individual mandate was put in place to encourage everyone to get health insurance. The idea is simple. People take action to avoid pain. If you don’t get health insurance in 2014, then you will have to pay the mandate penalty.
The mandate penalty will be determined and paid when you file your tax returns for 2014. This will occur by April 15th in 2015.
Over the next 3 years, the penalty will increase as laid out in the Affordable Care Act.
So how much is the mandate penalty?
The rules for the mandate say that you can go without health insurance for up to three months without owing a penalty. On the 4th month without coverage, you will begin to have a penalty.
The penalty is prorated over the whole year, so if you are without insurance for 4 months during 2014, then you would owe 4/12 x the penalty. See the examples below.
- EXAMPLE 1: If you had health insurance for only 6 months during 2014, then your penalty would be for the 6 months you did not have insurance. In this case, the penalty would be half the $95 minimum penalty, $47.50, or half the 1% of your modified adjusted gross income (MAGI). The reason is that the rules say the penalty is the GREATER of $95 or 1% of you MAGI.
In all likelihood, your true penalty would be 1% of your MAGI in 2014 and then divided in half because you were only uninsured for 6 months of the year. So if your income in 2014 was $45,000 then your penalty would be $450/2 = $225.
So you can see that the penalty in 2014 will be significantly lower than the cost of buying health insurance.
- EXAMPLE 2: Let’s look at the same example above, but in 2016. In this case because you went without health insurance for 6 months, the penalty would be half the $625 minimum penalty, $312.50, or half the 2.5% of your MAGI.
In this case, if you made $45,000 in 2016, the 2.5% of your MAGI would be $1125 and half that is $562.50. So the total penalty you would pay on your tax return is $562.50.
- EXAMPLE 3: Let’s assume you decided to not get health insurance for an entire year, you have a family of four (two kids), and your household income is $95,000. For 2014, you would be subject to the 1% MAGI penalty, so your total penalty at tax time would be $950. In 2016 your total penalty would be $2,375.
In 2016 the penalty is pretty high and might cause many people to seriously consider getting health insurance. Until then, the mandate is just a feather and won’t hurt anybody.
How Much Will My Health Insurance Penalty Be?
The easiest way to estimate what your penalty might be is to use an online calculator.
Mandate Exemptions – Is There A Way To Avoid The Individual Mandate?
If you choose not to get health insurance, there may be a way to avoid having to pay the penalty when you file your tax returns. The Affordable Care Act provides a set of exemptions to the mandate.
These exemptions are:
- You are a US citizen living abroad, some non-citizens, or not lawfully present
- You are in jail (aka incarcerated)
- You are a member of an Indian tribe
The Indian tribes that this exemption applies to are listed in the federal register (see resources below)
- You are a member of certain religious groups
These groups must be “conscientiously opposed to accepting any insurance benefits” as recognized by the Social Security Administration, and have been in existence since 1951.
- You are a member of a health care sharing ministry
These Qualified groups, as defined by the IRS, must have existed since 2000.
- You got health coverage from AmeriCorps, the National civilian Community Corps, or VISTA
- You did not accept a company-sponsored health plan that began in 2013 and ended in 2014
This is a special 2014 year exemption.
- Your existing 2013 health plan was cancelled, and you consider the available plans unaffordable
- You were uninisured at any time before May 1, 2014 and signed up for coverage starting by May 1, 2014
- You were enrolled in a limited benefit plan through TRICARE or Medicare
- You had no health insurance for a maximum of 2 consecutive months during the year
- Your income is below the income tax filing thresholdIn 2013, the tax filing threshold is $9,750 for an individual, and $19,500 for a married couple filing jointly. I recommend you discuss this exemption with a tax professional because SPF Insurance does not provide tax advice.
- You can’t afford to pay for coverage
If the cost of the cheapest plan is more than 8% of your household income, you may qualify for this exemption.
- You have had a specific hardship listed below
There are very specific hardship circumstances that apply for this exemption. If one of these applies to you, the you could be exempt:
- You were homeless.
- You were evicted in the past 6 months or were facing eviction or foreclosure.
- You received a shut-off notice from a utility company.
- You recently experienced domestic violence.
- You recently experienced the death of a close family member.
- You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property.
- You filed for bankruptcy in the last 6 months.
- You had medical expenses you couldn’t pay in the last 24 months.
- You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member.
- You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you do not have the pay the penalty for the child.
- As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace.
- You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.
- Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable
- If you experienced another hardship in obtaining health insurance, complete the hardship exemption form to apply for an exemption with the Marketplace.
If you have suffered one of the above hardships, be sure to check the information below about how to claim your mandate exemption.
Mandate Exemptions – How Do You Apply for One?
The hardship exemption application is only available from the healthcare.gov website. Covered CA requires that you apply for an exemption control number (ECN) by filling out the Hardship Exemption Application at healthcare.gov.
That being said, there are different ways to get exemptions depending upon what your situation is.
- You can claim these on your tax return if you qualify for exemptions 1, 7, and 9 – 13
- You need to complete the hardship exemption application if you qualify for exemptions 4, 6, or any of the hardship exemptions i – xiv
- You can apply for an exemption, or claim on your tax return for exemptions 2, 3, or 5
Here is more information about how to claim or report the Shared Responsibility Exemptions from the IRS.
Shared Responsibility Provision – How Will It Effect Your Tax Returns?
When you file your tax returns each year, the IRS will require that you prove you had health insurance coverage. In 2015, the Covered California Exchange will provide 1095A forms to everyone that got coverage using CoveredCA.com. The health insurance companies and employer-sponsored group health plans are not required to provide 1095 forms until 2016.
If you are uninsured for more than 3 months during any year, and you do not have a valid exemption, you will be subject to the shared responsibility provision and have to pay a penalty on your tax return. For more details about this, see the IRS FAQ page.
Return to the What Is Health Care Reform? page.