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Small Business Employee Benefits and HR Blog

Individual Health Insurance Mandate Tax Penalty FAQ

Beginning in 2014, the Affordable Care Act includes a mandate for most individuals to have health insurance. If an individual fails to meet the requirements of the mandate, he or she will be required to pay a tax penalty. Specifically, the individual mandate requires individuals to maintain "minimum essential coverage" for themselves and their dependents.  Here are some frequently asked questions (FAQs) about the mandate:

1. What is Minimum Essential Coverage?individual mandate health insurance tax penalty

Minimum essential coverage is the minimum amount of health insurance coverage an applicable individual must purchase to avoid paying the penalty (see #3, below).

2. What Types of Coverage Qualifies As Minimum Essential Coverage?

The following plans qualify as minimum essential coverage:

  1. Coverage under government sponsored programs (e.g. Medicare and Medicaid).

  2. Coverage under an "eligible employer-sponsored plan".

  3. Coverage under a plan offered in the individual market within a State.

  4. Coverage under a grandfathered health plan.

  5. Other coverage, such as coverage under a State risk pool, that the Secretary of Health and Human Services (HHS) chooses to recognize as minimum essential health coverage. 

Minimum essential coverage does not include:

  1. Coverage consisting of excepted benefits, such as dental-only coverage.

  2. Employer-based coverage that is not offered through an "eligible employer-sponsored plan", such as a Health Reimbursement Arrangement.

3. What Is An "Eligible Employer-Sponsored Plan"?

Coverage under an eligible employer-sponsored plan is defined as a group health plan or group health insurance coverage offered by an employer which is:

  1. a governmental plan under PHS section 2791(d)(8),

  2. any other plan or coverage offered in the small or large group market within a State, or

  3. a grandfathered health plan offered in a group market.

4. How Does “Minimum Essential Coverage” Differ From “Essential Health Benefits”?

Essential health benefits are required to be offered by certain health insurance plans starting in 2014 as a component of the essential health benefit package.  They are also the benefits that are subject to the annual and lifetime dollar limit requirements.

This is different than minimum essential coverage, which refers to the coverage needed to avoid the individual mandate penalty. Coverage does not have to include essential benefits to be minimum essential coverage.

5. What Is The Tax Penalty For Failing To Comply With The Individual Mandate?

The penalty is phased-in over three years: 

  • In 2014, the penalty will be $95 per person up to a maximum of three times that amount for a family ($285)* or 1% of household income if greater.
  • In 2015, the penalty will be $325 per person up to a maximum of three times that amount for a family ($975)* or 2% of household income if greater.
  • In 2016, the penalty will be $695 per person per year up to a maximum of three times that amount for a family ($2,085)* or 2.5% of household income if greater.

Beginning in 2017, the penalties will be increased by the cost-of-living adjustment.

Each year, the penalty is capped at an amount equal to the national average premium for bronze level health plans offered through state exchanges.

6. Which Individuals Are Exempt From The Mandate?

Generally, an individual is not subject to the mandate if one or more of the following circumstances apply:

  1. the person has been approved for a religious exemption under Section 1311(d)(4)(H) of the Patient Protection and Affordable Care Act (PPACA)

  2. the person is a member of a health care sharing ministry

  3. the person is not a citizen or national of the United States or an alien lawfully present in the United States

  4. the person is incarcerated without any pending disposition of charges

    The Comprehensive Guide to the Small Business HRA  

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