Health care reform: Know the rules and penalties of the individual mandate

May 29, 2013

The individual mandate starts in January 2014 and is an important part of the Affordable Care Act. The individual mandate requires people legally living in the U.S. to buy a minimum amount of health coverage unless they are exempt. In general, people who don’t have to file taxes due to low income are exempt from the individual mandate.

But how does it work? And what are the penalties for people who don’t get coverage?

How the individual mandate works

When people file their 2014 taxes in 2015, they’ll need to report whether or not they had health coverage in 2014. If they did have coverage, they will need to report if they qualified for a tax credit or subsidy. Health coverage includes a group plan, an individual plan, Medicare or Medicaid. If they don’t have health coverage, they could face a tax penalty. Each year, the penalty increases.

What are the tax penalties?

If a person doesn’t have a health plan, he or she will pay a tax penalty as follows:.

  • 2014: Penalty is the larger amount – $95 or 1% of taxable earnings
  • 2015: Penalty is the larger amount – $325 or 2% of taxable earnings
  • 2016: Penalty is the larger amount – $695 or 2.5% of taxable earnings

What happens if your clients can’t pay for a plan?

People may qualify for a tax credit through the exchange based on their incomes. People earning between 100% and 400% of the federal poverty level can qualify if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare and Medicaid.

This includes:

  • Individuals with modified adjusted gross incomes of $11,490 to $45,960 a year
  • Families of four with modified adjusted gross incomes of $23,550 to $ 94,200 a year.

People may qualify for cost-sharing subsidies based on their income. This includes:

  • Individuals with modified adjusted gross incomes of $11,490 to $28,725 a year.
  • Families of four with modified adjusted gross incomes of $23,500 to $58,875 a year.

To learn about other health care reform topics, check out the timeline and FAQs on our broker/employer health care reform website or visit our member website, healthcarereform4you.com.

This article applies to:

  • California, Wisconsin, Virginia, Ohio, New York, Nevada, New Hampshire, Missouri, Maine, Kentucky, Indiana, Georgia, Connecticut,  and Colorado
  • Small Group, Large Group,  and Individual (under 65)

Premium Tax Credits for Low-Income

Premium Tax Credits for Lower-Income Individuals
In 2014, a “premium tax credit” will be available to help pay for coverage purchased through the Exchange for individuals and families:
  1. Who do not qualify for Medicare or Medicaid and
  2. Are not offered affordable, minimum value health insurance through an employer,
  3. Taxpayers, with income between 100% and 400% of the federal poverty line (FPL)
  4. Purchasing insurance through an Exchange.
SAMPLE TAX CREDIT FOR PURCHASE IN COVERED CALIFORNIA
% of FPL
Annual Income (family of 4)
Unsubsidized Annual Premium
Tax Credit
Annual Premium After Credit
Monthly Premium After Credit
150%
$35,137
$14,245
$12,840
$1,405
$117
200%
$46,850
$14,245
$11,294
$2,951
$246
300%
$70,275
$14,245
$7,569
$6,676
$556
400%
$93,700
$14,245
$5,344
$8,901
$742
Adjusted 2013 Federal Poverty Guidelines

48 Contiguous States and DC
Note: The 100% column shows the federal poverty level for each family size, and the percentage columns that follow represent income levels that are commonly used as guidelines for health programs.
Household Size
100%
133%
150%
200%
300%
400%
1
$11,490
$15,282
$17,235
$22,980
$34,470
$45,960
2
15,510
20,628
23,265
31,020
46,530
62,040
3
19,530
25,975
29,295
39,060
58,590
78,120
4
23,550
31,322
35,325
47,100
70,650
94,200
5
27,570
36,668
41,355
55,140
82,710
110,280
6
31,590
42,015
47,385
63,180
94,770
126,360
7
35,610
47,361
53,415
71,220
106,830
142,440
8
39,630
52,708
59,445
79,260
118,890
158,520
For each additional person, add
$4,020
$5,347
$6,030
$8,040
$12,060
$16,080
Source: Calculations by Families USA based on data from the U.S. Department of Health and Human Services
Determining eligibility for the premium tax credit
Modified” gross income is calculated which includes Social Security benefits that are not included in gross income for the taxable year.  In addition, some individuals and families will qualify for a cost-sharing reduction subsidy to help with deductibles and co-payments.
How will services be paid?
When an individual receives covered essential health benefits, the provider will collect only the amount of cost-sharing specified in the silver plan variation in which the individual is enrolled. The federal government will pay the insurer in advance the amounts estimated to cover the cost-sharing reductions associated with the specific silver plan variation. HHS intends to propose that this advance cost-sharing reduction payment to the insurer would occur monthly, and that, after the end of the calendar year, the federal government would reconcile the advance payments to actual cost-sharing reduction amounts.
The Exchange Determines Eligibility for Premium Tax Credit and Cost-Sharing Reductions.
Exchanges must have a coordinated system of eligibility so that an individual can simultaneously apply for enrollment, apply for premium tax credits and apply for cost-sharing reductions. Proposed IRS regulations would permit the disclosure of income and other specified information about an individual taxpayer to HHS for purposes of making eligibility determinations for advance payments of the premium tax credit or the cost-sharing reductions.
Ineligibility for the tax credit (groups with over 50 Full Time Equivalent Employees)
As a general rule, if an Applicable Large Employer’s plan constitutes “minimum essential coverage” in that it is both affordable and provides minimum value, merely being eligible for the plan will make an employee ineligible for the tax credit. The final regulations clarify that an eligible employee who declines enrollment in such a plan remains ineligible for the tax credit for each month in the coverage period related to the enrollment period (e.g., for the full plan year in the case of an annual enrollment period).
This information is subject to future guidance and regulations
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