Are You Required to Have Health Insurance? In Some States, You Are
The Tax Cuts and Jobs Act of 2017 eliminated the so-called “individual responsibility payment” that the Affordable Care Act (ACA or Obamacare) imposed as part of its health insurance reforms. The shared responsibility payment was part of a larger concept known as the individual mandate. This mandate requires most Americans to hold minimum essential coverage (major medical insurance) or pay a fine when you file your taxes. For the most part, the individual mandate has been ineffective at driving young and healthy people into the health insurance market. Noble as its aims might be, the requirement to have health insurance (not to mention the corresponding tax penalty) has been unpopular among consumers – for obvious reasons – regardless of whether they support Obamacare or not.
Starting January 1, 2019, the penalty for not having health insurance gets zeroed out. In effect, this cancels out the individual mandate at the federal level. Some health insurance experts have predicted that eliminating the individual mandate will create chaos in the individual market, on and off Obamacare exchanges. Supporters of the measure assert that more freedom for people to choose the coverage they want will benefit the individual nongroup market as a whole.
But while the individual mandate penalty has been zeroed out at the federal level, states are still free to set their own guidelines when it comes to their health insurance markets. In response to the Trump administration’s move to slash the tax penalty for not having health insurance, some states have imposed their own individual mandates. And if you live in one of these states, you will be required to hold qualifying health insurance or face the penalties involved.
States with an Individual Mandate
Massachusetts has had its own individual mandate in place since 2006. Once the ACA passed in 2010, the state rolled its mandate in with the federal one. Now that the federal mandate has been repealed, the state will impose its own once more. If you live in Massachusetts, you’ve got access to affordable health insurance and you go without health insurance that meets the state’s “minimum creditable coverage standards” for more than 63 days, then you’ll owe a penalty fine for each month that you didn’t have health insurance for the year.
How much you’ll pay depends on your income, but Massachusetts does set a cap on the penalty. Your fine can’t be more than 50 percent of the “minimum monthly insurance premium” that you qualify for on the state’s Health Connector exchange. In other words, if the cheapest premium you personally would pay on the Health Connector site is $200 a month, your penalty can’t be more than $100 a month. But that amount multiplies by the number of months you went without insurance, which means that in this example, you could pay up to $1,200 for the year. For married couples, each person is subject to the penalty.
You won’t have to worry about doing the math yourself. The state will happily calculate that penalty for you, of course. And not everyone is subject to the penalty. In 2018, for instance, people who earn up to 150 percent of the federal poverty level don’t have to pay the fine. If you’re a Bay State resident and you don’t want or can’t find affordable coverage (based on your standards, not the state’s), then know that you may be subject to a penalty fee if you forgo major medical in 2019.
New Jersey passed a law establishing its own individual mandate on May 30, 2018 in direct response to the Trump administration’s actions regarding the federal mandate. In fact, the New Jersey law is titled New Jersey Health Insurance Market Preservation Act, clearly an indicator of the state’s concerns about the individual market under Obamacare.
Unlike Massachusetts, New Jersey appears to be following the penalty calculations that the federal government used up until this year. According to the new law, Garden State residents will be required to hold minimum essential coverage or pay a state penalty “equal to a taxpayer’s federal penalty that would apply for the taxable year under section 5000A of the Internal Revenue Code of 1986, as in effect on December 15, 2017.” In other words, what you would’ve paid under Obamacare if you didn’t have coverage, you’ll now have to pay to the state of New Jersey if you’re a resident and don’t meet the law’s requirements for coverage.
In 2018, the federal penalty for not having health insurance is the greater of $695 per uninsured adult and $347.50 per uninsured child in your household, or 2.5 percent of your household’s taxable income. There are caps in place for either calculation. But instead of relying on the national average for bronze plans as a benchmark for penalty fees, New Jersey will use state averages. Also, the state treasurer will determine what counts as “affordable” for health insurance for the purpose of exempting low-income residents from the penalty fee. New Jersey’s mandate takes effect on January 1, 2019.
Two days before New Jersey passed its mandate law, Vermont signed a law into place establishing its own individual mandate. But the state has pushed back implementation of this measure to 2020 so that the state legislature can review penalties further over the next year. Per the act signed into law, the state is establishing a mandate that will be:
“enforced by a means of financial penalty or other enforcement mechanism and that the enforcement mechanism or mechanisms should be enacted during the 2019 legislative session in order to provide notice of the penalty to all Vermont residents prior to the open enrollment period for coverage for the 2020 plan year.”
Basically, Vermont does have an individual health insurance mandate in place, but it won’t take effect until 2020. Details about how much the penalty will be and how it will be enforced have not been decided.
State Action on Individual Mandates
Massachusetts, New Jersey and Vermont are the only states with laws on the books – passed and signed – requiring their residents to hold health insurance, but they may not be the only states for long. Already, there’s been talk of other state action on individual mandates. Connecticut, the District of Columbia, Hawaii, Maryland and Washington have already proposed individual mandates for health insurance. Other states that might consider individual mandates include California and Minnesota.
Aside from political motivations – left-leaning states tend to support the ACA and may be partially motivated by pushback against the Trump administration – states that impose their own mandates could see a reduction in health insurance premiums. The Commonwealth Fund studied the impact of individual mandates on uninsured rates and premiums. Overall, they found that premiums could be nearly 12 percent lower nationwide if states adopted individual mandates. New Mexico, for example, could see premiums drop by 21 percent with a mandate in place. But the organization does note that federal spending wouldn’t change even if states adopted their own mandates.
What Does All This Mean for You?
You might be wondering what all of this means for you, especially if you live in a state without an individual mandate and one that isn’t likely to adopt one. Conservative states tend to agree with the Trump administration’s quest to dismantle Obamacare, so you probably won’t need to worry about a mandate if you live in, say, Kentucky, Idaho or Tennessee. But even if you live in a red state, the fact that some states will impose mandates and others won’t could affect insurance rates across the border. Federal requirements may also change over time depending on the goals of the administration.
It’s important to keep tabs on whether you need to buy health insurance or not. Of course, you should buy it if you can afford it – health insurance is a wise investment – but knowing whether your state has its own penalty could keep you from spending hundreds of dollars a year in penalty fees.
The bottom line is that while federal law has now scrapped the individual mandate, individual states may adopt one to encourage participation in the nongroup health insurance market. States need younger, healthier insurance customers to balance out the cost of care for people with chronic conditions and those who need more medical care. You’ve got plenty of options for health insurance on and off the marketplace, whether you buy major medical coverage or choose a new lengthier short term health plan. Consider your options carefully, and make sure you know how your state handles the individual mandate as you choose your health insurance in 2019.