The Cost of the Individual Mandate Penalty for the Remaining Uninsured | KFF
The Affordable Care Act (ACA) expands health insurance coverage by offering penalties and incentives. Low- and middle-income households who earn too much to qualify for Medicaid can purchase subsidized coverage in health insurance marketplaces using premium assistance tax credits. People who don’t get coverage, through any source, are subject to a tax penalty unless they meet certain exemptions. Penalties under the so-called individual mandate were phased in over a three-year period beginning in 2014 and are scheduled to increase substantially in 2016. A key area of uncertainty for 2016 is how much increased penalties will encourage the uninsured, particularly that are healthy – to get coverage, boost enrollment in the marketplaces, and improve the insurance risk pool. this analysis provides estimates of the proportion of uninsured individuals eligible to enroll in the marketplaces who will be subject to the penalty, and how those penalties will increase by 2016.
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how the single mandate works
Individuals are generally required to be covered by a health insurance policy that meets minimum standards or pay a tax penalty.
Reading: What is the penalty for no health insurance in 2014
some people are exempt from the penalty, including undocumented immigrants, those whose income is so low they are not required to file taxes, people with incomes below 138% of poverty in the “medicaid gap” in States that have not expanded eligibility for Medicaid under ACA, people who have to pay more than 8.13% of household income for insurance (taking into account employer contributions or subsidies), and certain people who are members of certain groups or face particular difficulties.
For those who are uninsured and do not meet one of the exemptions, the penalty for 2016 is calculated as the greater of two amounts:
- a flat dollar amount equal to $695 per adult plus $347.50 per child, up to a maximum of $2,085 per family.
- 2.5% of family income in excess of 2015 income tax filing thresholds ($10,300 for a single person and $20,600 for a family).
The penalty cannot be more than the national average premium for a bronze plan (the minimum coverage available in the individual insurance market under the aca), which was $2,484 in 2015 for individual coverage and $12,420 for a family of three or more children. the penalty is prorated for people who are uninsured for part of the year and is waived for people who are uninsured for less than three months.
As the table below shows, fine amounts have increased substantially since 2014.
estimates of the actual penalties people will face
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To assess how effective the individual mandate can be in increasing marketplace enrollment, we look at how penalties increase for people who were uninsured at the beginning of 2015 and are “marketplace eligible.” this includes non-elderly people eligible for market subsidies, as well as those who are not because their income is too high, but excludes people who are eligible for medicaid, in the “medicaid gap” or eligible for employer coverage. 1 We estimate that 78% of people who are uninsured and eligible in the marketplace would be subject to the individual mandated penalty if they remain uninsured in 2016, including 75% of people who are eligible for premium subsidies and the 84% of people who are not.
Among people who were uninsured at the beginning of 2015 and eligible to enroll in the marketplace, the average penalty per household in 2016 is $969. this is 47% more than the estimated average fine this year of $661. Those who are eligible for premium subsidies will face an average family penalty of $738 in 2016, while the average family penalty totals $1,450 for the uninsured who are not eligible for any financial assistance.
About 7 million uninsured people are eligible for Marketplace premium subsidies and are a key target group for increasing Marketplace enrollment. almost half (48%) of them could, in fact, purchase a bronze plan for zero premium contribution or for less than the penalty they would have to pay for remaining uninsured, including 28% who could purchase a bronze plan using their premium subsidized for a zero premium In other words, 3.5 million uninsured people eligible for the subsidy could get coverage for free or end up paying less by enrolling in Marketplace coverage than if they remained uninsured and paid the individual mandate penalty. however, bronze plans come with high deductibles, and low-income members may be better off financially by enrolling in silver plans that have higher premiums but are eligible for cost-sharing subsidies.
In total, of the nearly 11 million uninsured who are eligible to enroll in Marketplace coverage, either with or without financial assistance, 7.1 million would pay less for any penalty than they would pay to purchase the insurance cheapest available to them.
increasing enrollment in the aca’s health insurance marketplaces would help reduce the number of uninsured and keep premium increases low as more healthy people enroll. premium subsidies are an important “carrot” to attract new members. As fines increase in 2016, the “stick” of the individual mandate may also become an increasingly important factor in household decisions about purchasing insurance.
however, the effectiveness of the individual mandate as a tool to increase enrollment will depend on how prominent it is in outreach messages. and emphasizing the coverage mandate presents challenges for ACA advocates as it is the most unpopular part of the law. At the same time, lack of knowledge about the ever-increasing penalties under the mandate could lead to unpleasant surprises when people file their 2016 taxes in early 2017.
See also : Keeping, changing, or updating your Marketplace plan | HealthCare.gov
This analysis uses data from the 2015 Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC). The ASEC CPS provides socioeconomic and demographic information on the United States population and specific subpopulations. More importantly, the CPS ASEC provides detailed data on families and households, which we use to determine income for ACA eligibility purposes.
cps asks respondents about coverage at the time of the interview (for cps 2015, february, march, or april 2015), as well as during the previous calendar year. people who report any type of coverage during the previous calendar year are counted as “insured”. therefore, the calendar year measure of the uninsured population captures people who were uninsured for all of 2014 (and therefore uninsured at the beginning of 2015). we use this measure of insurance coverage, rather than the measure of coverage at the time of interview, because the latter lacks details about the type of coverage used in our model. Based on other survey data, as well as administrative data on ACA enrollment, it is likely that a small number of people included in this analysis gained coverage in 2015.
Medicaid and the marketplaces have different rules on household composition and income for eligibility. For this analysis, we calculated household membership and income for Medicaid and Marketplace premium tax credits for each person individually, using the rules of each program. For more details on how we build Medicaid and marketplace households and count income, see the detailed technical appendix a available here.
Undocumented immigrants are not eligible for Medicaid and Marketplace coverage. Because CPS data does not directly indicate whether an immigrant is lawfully present, we rely on the underlying methods of the 2013 analysis by the State Health Access Data Assistance Center (SHADAC) and recommendations made by Van Hook. et. al.2,3 this approach uses the survey of income and participation in programs (sipp) to develop a model that predicts immigration status; It then applies the model to CPS, controlling for state-level estimates of the total undocumented population from the Department of Homeland Security. For more details on the immigration imputation used in this analysis, see Technical Appendix B available here.
Individuals in tax filing units with access to an affordable offer of employer-sponsored insurance are still potentially eligible for Medicaid coverage, but are not eligible for advanced premium tax credits on Medicare insurance exchanges. Health. Since the cps data does not directly indicate whether workers have access to esi, we turn to methods comparable to our authorization status imputation and use sipp to develop a model that predicts the supply of esi, then apply the model to cps. For more details on the supply imputation used in this analysis, see Technical Appendix C available here.
The household contribution for a Marketplace plan includes the cost of covering all subsidy-eligible individuals in the tax filing unit, including those who may currently be purchasing non-group coverage outside of the exchange. People who are eligible for a basic health plan in New York or Minnesota are included as eligible for the subsidy in this analysis. the penalty for each uninsured non-elderly person is based on the number of uninsured persons in the household. The cost of the average bronze plans in 2016 is estimated by inflating the 2015 average by growth between 2014 and 2015. In this analysis, households with income below the relevant tax filing threshold, in the Medicaid gap, or where the cost of the cheapest available (subsidized) bronze plan exceeds the affordability standard it is deemed not to have a penalty. people who are not eligible to purchase coverage from the marketplace, such as undocumented immigrants, are excluded from the analysis. There may be additional exemptions for which individuals are eligible, including particular hardships such as medical debt or domestic violence, and membership in groups such as a health care sharing ministry or a recognized Indian tribe. people age 65 and older are excluded from the analysis.