Avoid The Fines!: Understanding the Individual Mandate of the ACA

Did the recent tax reform law-formally known as the “Tax Cuts and Jobs Act”- repeal the tax penalty for not maintaining individual health insurance coverage? The answer is “Yes” and “No”.

The Affordable Care Act, often referred to as the ACA or “Obamacare”, required virtually all Americans who are not covered by a government or employer health insurance plan to purchase individual health insurance or pay a penalty. Polls have consistently shown that the “individual mandate” and the penalty associated with it are the least popular provisions of the ACA. It has fallen to the IRS to enforce the penalty by means of a question regarding health insurance on individual tax returns and a requirement that proof of coverage be provided with the return.

When opponents of the ACA in Congress were not able to garner the votes needed to repeal the law in 2017, they attempted instead to repeal the individual mandate. The repeal was included in the sweeping tax reform bill that was passed early in 2018. Many opponents of the individual mandate assumed that the tax penalty associated with it was thus eliminated immediately. Various posts on social media sites such as the Facebook page of Covered California, the state’s health insurance exchange, celebrated the repeal of the penalty. This is where the confusion lies. The new tax bill did repeal the penalty, but it did not do so until 2019.

This delay in implementing the repeal means that penalties may still be assessed on individuals filing tax returns for 2017 and next year for 2018. Further, the penalties can be substantial. For 2017 the fee is calculated two different ways and the penalty is whichever is higher. The first method is a per person penalty of $695 per adult and $347.50 per child with a maximum penalty of $2,085. The second method is 2.5% of household income with the maximum penalty set at the total yearly premium for the national average price of a Bronze level health insurance plan sold through the government’s health insurance marketplace.

As is evident from the brief summary above, the rules governing penalties for failing to carry health insurance are complex and can be can be significant. Self-employed professionals such as appraisers who carry their own health insurance should be sure that their plan meets the criteria for “minimum essential coverage” under the law so that they do not risk incurring penalties on their 2017 and 2018 tax returns. If there is any doubt whatsoever, they should seek the advice of a knowledgeable tax professional. In addition, Paul Porter of LIA Administrators and Insurance Services is also available to discuss this and other health insurance topics. He may be reached at 800-334-0652 extension 140 or via email at paul@liability.com. For information on health plans available through LIA, please go to www.liahealthplans.com.