By Alvin Tran, Kaiser Health News
It’s one of the key building blocks of the insurance overhaul: the individual mandate. It requires most people to obtain health insurance or pay a tax penalty.
If you already have insurance through work or a government health insurance program like Medicare or Medi-Cal, you’re set. If not, you can shop on a new online marketplace, such as Covered California here in the Golden State.
Yet 26 percent of Americans aren’t aware of the requirement or didn’t think the law included it, according to a March 2013 Kaiser Family Foundation poll.
Here are some basic questions and answers about mandate.
Q. What is the individual mandate?
“This individual mandate is to keep premiums low for everyone. If you don’t have incentives for everyone to sign up then only the sick people will enroll.”
A. The individual mandate is a provision of the federal health law (i.e. “Obamacare”) that requires you, your children and anyone else that you claim as a dependent on your taxes to have health insurance in 2014 or pay a penalty. That coverage can be supplied through your job, public programs such as Medicare or Medicaid, or an individual policy that you purchase. The health law is setting up online health insurance marketplaces, also known as exchanges, to help you shop for plans.
Q. Who is affected by the mandate?
A. The mandate is aimed at some of the 57 million people younger than 65 who now do not have insurance. Roughly 7 million of those without insurance live in California.
Q. Are there any exceptions to the mandate?
A. Yes, the government has identified exemptions. Individuals who cannot afford coverage because the cost of premiums exceed 8 percent of their household income or those whose household incomes are below the minimum threshold for filing a tax return are exempt.
Other exempt groups include prisoners, Native Americans eligible for care through the Indian Health Care service, immigrants who are in the country illegally, people whose religion objects to having insurance coverage, members of a health care sharing ministry and individuals who experience a short coverage gap of less than three consecutive months.
CBO estimates that in 2016, after the major provisions of the health law are implemented, 24 million people will be exempted from the mandate’s penalties.
Q. What happens if I don’t get coverage?
A. If you do not have the minimum level of coverage and do not qualify for an exemption, you must pay a penalty to the IRS at the end of the tax year. The penalty for the first year is up to $95 per adult and $47.50 per child, or 1 percent of family income, whichever is greater.
The fine, however, increases over time and in 2016 will be as much as $695 per adult and $347 per child (up to $2,085 for a family) or 2.5 percent of family income, whichever is greater.
The amount you owe will be pro-rated to reflect the number of months you were without coverage.
CBO estimates that 6 million people, about 2 percent of the population, will be assessed a penalty in 2016.
Q. How do I satisfy the mandate and how does the law help me afford insurance?
A. Again, if you have employer-based health insurance, Medicare or Medicaid (in California, Medi-Cal), you are set.
If you are uninsured or thinking about switching plans, you can shop for coverage through the online marketplaces beginning Oct. 1. The Covered California marketplace is scheduled to open at that time.
The marketplaces will also offer tax subsidies to help reduce the cost of premiums. If your income is less than 400 percent of the federal poverty level ($45,960 for an individual and $94,200 for a family of four in 2013), you likely will qualify for a subsidy.
People with incomes up to 250 percent of the federal poverty level ($28,725 for an individual and $58,875 for a family of four in 2013) are also eligible for cost-sharing subsidies. These additional subsidies will substantially reduce the deductibles, copayments, coinsurance and total out-of-pocket spending limits.
Although the law takes effect Jan. 1, the initial enrollment period continues through March 31. Since people are exempted for a short coverage gap – less than three months – individuals that obtain coverage before the end of March will be exempt from the payment for that period.
Q. Why is there a mandate anyway?
A. The health law was designed to extend insurance to nearly all people, including those who have medical conditions that require expensive care and are often denied coverage today. But to pay for their care, insurance companies need to have a large enrollment of consumers, especially young and healthy people who use fewer services. The mandate was adopted to guarantee a broad base.
Topher Spiro, the vice president of health policy at the Center for American Progress, a left-leaning nonprofit that supports the law, says Obamacare will be more effective with the mandate than without it. “This individual mandate is to keep premiums low for everyone,” he said, noting that “if you don’t have incentives for everyone to sign up for coverage then only the sick people will enroll,” and that drives up premiums.
But others suggest the mandate won’t be effective because the penalties are set so much lower than the cost of coverage.
“The mandate was an attempt to get around the fact that insurance is going to become a lot more expensive for a lot of people even with the subsidies,” said Joseph Antos, an economist with the conservative American Enterprise Institute. Antos believes the tax penalty for remaining uninsured is too low and questions the government’s ability to identify those who end up not filing taxes. “I would argue that the individual mandate is largely unenforceable and does not turn out to be this solution to the other problems that raise insurance costs for that particular group of people,” he added.
Q. How do I report my coverage or exemptions to the government?
A. You will not have to report your coverage or exemptions until you file your 2014 income tax return, which won’t be due until April 15, 2015. Insurance providers will also be required to help their clients report their health coverage. The Internal Revenue Service says it will put out details later about how the reporting will work.
If your income is so low that you do not file a tax return, you are exempt from paying the penalty.
Q. How do I apply for an exemption?
If you are seeking an exemption for incarceration, membership in an Indian tribe or health care sharing ministry, you can apply through the health insurance exchanges or make a claim when you file taxes, according to a final rule issued by the U.S. Department of Health and Human Services. If you are claiming economic hardship or a religious exemption, you must get an exemption certificate from the online insurance exchange. If you are claiming that coverage is unaffordable, you are in the United States without proper documentation or have a coverage gap of less than three months, you can make the claim when you file your 2014 taxes in 2015.
Q. Where did the idea of the mandate originate?
A. The origins of the individual mandate have been controversial. Many Democrats who support the law suggest it was originally a conservative idea developed in 1989 by the Heritage Foundation’s Stuart Butler to counter liberals’ efforts to establish a single payer system and impose a mandate on employers to provide insurance. Several years afterward, Republicans used the individual mandate in a bill they offered as an alternative to Bill Clinton’s proposal to overhaul health insurance. The mandate also was incorporated as part of the Massachusetts overhaul of health insurance in 2006 under then-Gov. Mitt Romney.
Democrats later adapted the concept and pushed it as part of the congressional debate over the Affordable Care Act, despite President Barack Obama’s initial reluctance to embrace it. Whatever their prior views, most conservatives opposed the health law’s version of the mandate, and Butler made a spirited argument that the current mandate is not what he was endorsing years ago.