What is the individual requirement?
The Affordable Care Act (ACA) requires all citizens and legal residents to have qualifying health coverage or pay a tax penalty. The individual responsibility requirement makes it possible for everyone - including people with pre-existing conditions like diabetes, asthma or cancer - to get health insurance. Without a requirement, only people who were sick and needed insurance would get it, which would make premiums very expensive. Healthy people could wait until they get sick to purchase coverage. By making sure healthy people are insured, the requirement will bring down the average cost of coverage for all. And, to help make insurance affordable for low- and middle-income families, the law provides subsidies for premiums and out-of-pocket expenses.
How does the requirement work?
Beginning on January 1, 2014, any person without qualifying health coverage must pay a tax penalty, either a flat rate or a share of household income, whichever amount is greater. The flat rate penalty is phased-in: starting in 2014 at $95 per year, increasing to $325 in 2015, and $695 in 2016. After 2016, the flat rate tax penalty increases annually with a cost-of-living adjustment. The maximum a flat rate tax for a family per year is $2,085 (3 times $695), no matter how large the family.
The other option is a penalty based on a share of household income that is also phased in, starting in 2014 at 1 percent of taxable income, increasing to 2 percent of taxable income in 2015 and maxing out at 2.5 percent of taxable income in 2016 and the years that follow.
What is qualifying health coverage?
To meet the coverage requirement, individuals must have qualifying health coverage. Most people will meet the requirement with the coverage they already have: through an employer-sponsored health plan, health plans in the individual market, and public plans such as Medicare, Medicaid, the Children's Health Insurance Program, TRICARE, and the veteran's health care program. Health plans available in the Exchanges will also meet the individual requirement for qualifying coverage.
What if someone cannot afford insurance? Are there exemptions?
The individual responsibility requirement does not apply to some:
- people who cannot afford coverage (defined as those who would pay more than 8 percent of their household income for their premiums)
- undocumented immigrants
- people without insurance for less than three months
- individuals with incomes below the tax filing threshold (In 2009, the tax filing threshold was $9,135 for individuals and $18,700 for couple)
Exemptions will also be given to specified categories of individuals, for example for religious reasons, American Indians, Americans living abroad for at least one year, and incarcerated individuals.