White House Publishes Regulations For Obamacare's Individual Mandate
On Tuesday, the Obama administration released the final regulations for Obamacare’s notorious individual mandate—the provision in the health care law that requires most Americans to purchase health insurance, or pay a fine. Tuesday’s entry in the Federal Register, spanning 75 pages, contains all of the fine print related to the individual mandate: who it applies to, who is exempted, and what kinds of insurance satisfy the government’s rules. Here are seven things you need to know about the mandate, what the law calls your “Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage.”
1. You pay a fine if your spouse and kids are uninsured
If you claim dependents on your tax return, you’re responsible for paying the mandate fines if your dependents don’t have health insurance. “A taxpayer is liable for the shared responsibility payment for an individual without minimum essential coverage if the individual is the taxpayer’s dependent,” write the authors of the new regulation, Heather Maloy, Acting Deputy Commissioner for Services and Enrollment at the Treasury Department; and Mark Mazur, Assistant Secretary of the Treasury for Tax Policy.
This provision takes on special importance because of its interaction with Obamacare’s employer mandate. Under the health law, employers with more than 50 full-time-equivalent workers are required to offer health coverage to their employees and employees’ dependents under the age of 26. Employers are not required to offer coverage to employees’ spouses. Hence, a worker who gets coverage through his job will be forced, under the individual mandate, to purchase coverage on his own for his spouse, if he or she doesn’t have other sources of coverage. A worker who doesn’t get coverage through his job will need to purchase coverage not only for himself, but also his dependents.
2. Pretty much any employer-sponsored plan meets the mandate’s requirements
In order to meet the mandate’s requirement, you have to have “minimum essential coverage.” That is a key term in the context of Obamacare. Medicare and Medicaid count as minimum essential coverage, as do plans purchased in the Obamacare exchanges. As for employer-sponsored coverage, pretty much any plan offered by an employer counts as meeting Obamacare’s requirements.
Paragraph 2 of Section 5000(A)(f) of the Internal Revenue Code defines employer-sponsored minimum essential coverage as “a group health plan or group health insurance coverage offered by an employer to the employee which is [either a government-sponsored plan] or “any other plan or coverage offered in the small or large group market within a State.”
In other words, any health insurance plan that is legally sold within a state’s boundaries counts as an “eligible employer-sponsored plan.” In many states, insurers market inexpensive plans that cover a limited range of services. According to Obamacare, employers can offer these inexpensive plans to their workers and thereby avoid the employer mandate’s strong penalty. Indeed, as I detailed in May, many employers will have a strong incentive to offer these “skinny” plans, and some are already starting to do so.
3. The mandate fine is small, and will have even less impact over time
In 2014, the fine for not carrying insurance is the higher of $95 per person or 1.0 percent of taxable income. In 2015, the fine is the higher of $325 per person, or 2.0 percent of taxable income. In 2016, it’s $695 per person or 2.5 percent of taxable income. You’re liable for up to 2 additional dependents, fine-wise.
A number of people have remarked upon the obvious fact that a several-hundred-dollar fine is nothing, compared to spending several thousand dollars on overly costly health insurance. But what a lot of people don’t realize is that, after 2016, the size of the fine is adjusted annually for cost-of-living increases. But historically, the cost of insurance has gone up every year at rates far exceeding normal inflation.
If that trend continues, the gap between the mandate fine and the cost of health insurance will continue to widen, incentivizing more people to go without coverage.
4. The IRS can’t go after you if you don’t pay the fine
Section 1501(g)(2) of the Affordable Care Act specifies that the IRS cannot subject taxpayers to “any criminal prosecution or penalty” for refusing to pay the mandate fine. Also, in contrast to normal tax levies, the IRS cannot “file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section.”
Basically, the only thing the IRS can do to make you pay the mandate fine is to withhold it from your tax refund, if you’re due one. So if you carefully calibrate your withholdings, such that you aren’t due a refund at the end of the year, the IRS has no way to collect the mandate fine.
5. Many older individuals will be exempt from the mandate
If you need to buy insurance on your own, you’re exempt from the individual mandate if the cost of your coverage is more than 8 percent of your household income. (The percentage is adjusted, over time, using a somewhat complex formula.) This means many older people—who pay higher premiums than younger people—will be exempt from the mandate altogether.
Paul Houchens, an analyst at Milliman, puts it this way: if you’re 55 years old, and you’re paying $7,800 a year for health insurance, you’ll be exempt from the individual mandate if your income is between 400 percent of the federal poverty level—about $46,000—and $97,500. (If your income is below $46,000, you qualify for at least a partial subsidy of your insurance costs, which, based on the way the law is written, makes the individual mandate apply to you.)
On the other hand, if you’re a 35-year-old, and you’re paying $3,600 a year for your health coverage, the mandate applies to you in nearly all cases, because $3,600 divided by 8 percent is $45,000, which is lower than 400 percent of the federal poverty level.
6. If you don’t file a tax return, you’re exempt
You’re also exempt if your income is below the poverty line, or if you don’t file an IRS tax return. Indeed, if you add up all of these exemptions, MIT economist and Obamacare architect Jonathan Gruber estimates that 40 percent of people who are uninsured are exempt from the individual mandate.
7. ‘Members of recognized religious sects’ and American Indians are also exempt
If you’re a member of a “federally-recognized Indian tribe,” congratulations! You’re also exempt from the individual mandate. This is in part because the Indian Health Service offers government-run health care to members of such tribes. Members of a “recognized religious sect or division,” as specified in Section 1402(g)(1) of the Internal Revenue Code, are also exempt. So, you might be asking yourself: which “religious sects” are exempt?
The Internal Revenue Code exempts an individual from certain taxes if he is “a member of a recognized religious sect or division thereof and is an adherent of established tenets or teachings of such sect or division by reason of which he is conscientiously opposed to acceptance of the benefits of any private or public insurance which makes payments in the event of death, disability, old-age, or retirement or makes payments toward the cost of, or provides services for, medical care,” including Social Security, Medicare, and Medicaid.
Your “sect” has to have been in continuous existence since December 31, 1950, and the Commissioner of Social Security must agree that your sect “has the established tenets or teachings” consistent with opposition to medical benefits. While there are some on the Internet who believe that this religious exemption applies to Islam, it doesn’t appear that way to me, as Muslims are not exempt from Social Security. Instead, the exemption is meant for groups like the Amish.
So if you really hate the individual mandate, you don’t have to burn your Obamacare card—just join the Amish or an Indian tribe!