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Updated on Thursday, November 16, 2017
With open enrollment for 2018 Obamacare coverage well underway, and after two failed attempts earlier this year to repeal the ACA, the Senate’s proposal has reignited feelings of uncertainty over the health care law’s future.
The Senate’s proposal also came a couple of days before House Republicans’ planned Thursday vote on their own tax reform bill. (The House’s version does not propose to touch the insurance coverage requirement.)
Part of the reason behind the Senate’s proposal to cut the individual mandate is to help free up federal dollars and partially offset a sweeping $1.5 trillion tax cut proposal. Without the mandate, fewer people would likely sign up for coverage and that would mean less money the government would need to spend on the tax subsidies it offers to balance out the cost of premiums for millions of Obamacare enrollees.
The Congressional Budget Office estimates that if the individual mandate is eliminated, it will save the federal government $338 billion, and 13 million more people — mostly the young and healthy — will be uninsured by 2027.
Here is what you need to know about the individual mandate and what it means if it goes away:
What is the individual mandate?
The individual mandate is a provision under the ACA that requires most U.S. citizens and noncitizens who lawfully reside in the country to have health insurance. It was signed into law in 2010. Consumers who can afford health insurance but choose not to buy it have to pay tax penalties unless they are otherwise insured or meet certain exemptions.
The purpose of the mandate was partially to ensure that even healthy and young Americans would sign up for health coverage, balancing the so-called insurance risk pool and helping to keep premiums affordable.
Why is the mandate unpopular?
The provision has been widely unpopular since its introduction. The Kaiser Family Foundation’s latest poll suggests that 55 percent of Americans supported the idea of removing the individual mandate as part of the Republican tax plan.
How does the individual mandate work?
The tax penalty for nonexempt individuals who do not sign up for health coverage is calculated as a percentage of household income or as a fixed amount per person. You’ll pay whichever is higher.
For 2017 the penalty was either:
- $695 per adult and $347.50 per child, up to $2,085 per family, or
- 2.5 percent of household income
The maximum penalty can be no more than the national average price of the yearly premium for a Bronze plan (the minimum coverage available in the individual insurance market) sold through the insurance marketplace.
HealthCare.gov hasn’t yet published the 2018 guidance, but Kaiser has launched a calculator using 2018 projections from Bloomberg BNA. For 2018, the calculator estimates the amount of penalty is $3,816 for a single person and $19,080 for a family of five or more, according to the foundation.
Some people are exempt from the penalty
You meet exemptions if coverage is considered unaffordable based on your income — under the ACA, “unaffordable”’ is if you would have had to pay more than 8.05 percent of your household income for the annual premium amount for health coverage in 2015 or 8.13 percent last year.
If you have experienced economic hardships or difficult domestic situations, such as homelessness, the death of a family member, bankruptcy, substantial medical debt or the toll of a disaster that damaged your property badly, you may apply for a hardship exemption.
People who are ineligible for Medicaid because their state hasn’t expanded that program also qualify for a hardship exemption. Those whose incomes are at or below 138 percent of the federal poverty level are eligible for Medicaid. That 138 percent means a little over $16,600 every year for a single person and nearly $34,000 for a family of four.
See more examples of people who qualify for penalty exemptions at IRS.gov.
You can find out if you are exempt from health care coverage using this tool:
What does it mean if the individual mandate is lost?
The immediate concern is that without fear of a tax penalty, not enough young, healthy people would get covered. When these low-risk people drop out of the market, coverage is skewed toward older, sick people who really need coverage. And that can lead to rapid increases in premium costs and even induce some insurers to drop out of the market.
Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation and senior adviser to the foundation president, summarized his thoughts on the loss of the mandate in a series of tweets Wednesday, saying he’s “doubtful” insurers would remain in the marketplace if the mandate were removed:
Repealing the ACA's individual mandate doesn't sound like something that could be bad for anyone. But, it's the mechanism that allows guaranteed coverage for pre-existing conditions.
— Larry Levitt (@larry_levitt) November 14, 2017
With no individual mandate, the door would be wide open to loosely-regulated insurance like short-term policies that don't cover pre-existing conditions but would be inexpensive for healthy people.
— Larry Levitt (@larry_levitt) November 14, 2017
Senate Majority Leader Mitch McConnell, R-Ky., defended the proposed repeal in a statement on Wednesday.
“We can deliver even more relief to the middle class by repealing an unpopular tax from an unworkable law,” he wrote. “It just makes sense.”