465 / What are the requirements regarding the purchase of health insurance or the payment of a penalty?

Editor’s Note: The 2017 tax reform legislation repealed the Affordable Care Act individual mandate that required individuals to purchase health insurance or pay a penalty for tax years beginning after December 31, 2018. The employer mandate and reporting requirements were not repealed.

Health care reform required most Americans to have health insurance beginning in 2014 in order to avoid liability for a monetary penalty referred to as the individual mandate.

Unless exempt, prior to 2019, Americans were required to have major medical health coverage provided by their employer or that they purchase themselves, or they became subject to a fine that was the greater of a flat amount, or a percentage of income (above the tax filing threshold). The amounts were $95 or 1 percent of income in 2014; $325 or 2 percent of income in 2015; and $695 or 2.5 percent of income in 2016. Families paid half the penalty amount for children under 18, up to a cap of $2,085 per family. After 2016, penalties were indexed to the Consumer Price Index. In 2017 and 2018, the inflation-adjusted dollar amount was $695.¹ In no event could the penalty exceed the average national annual cost of a bronze plan purchased on an exchange.² After 2018, the penalty no longer applies.

Exemptions from the individual penalty were granted for financial hardship, religious objections, American Indians, those without coverage for fewer than three months, undocumented immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8 percent of an individual’s income, and those with incomes below the tax filing threshold.³