The Individual Mandate: Questions you need answered.

What is the individual mandate?

The individual mandate, also known as the “shared responsibility” provision, requires everyone to have health insurance or potentially pay a penalty for noncompliance. Starting in 2014, everyone will be required to maintain minimum essential coverage for themselves as well as their dependents.


How do you satisfy the minimum essential coverage requirement?


You can satisfy the requirement by being covered by an Employer-sponsored health plan, by being covered by a Government-sponsored plan (Medicare, Medicaid, Children’s Health Insurance Program, Tricare, Veteran’s Health Care Program, Peace Corps Health Care Program), or by being covered by an individual health plan. For purposes of the individual mandate, the actual benefits of the plan you are enrolled in is not an issue. As long as you are enrolled in a government sponsored plan, an employer plan, or have an existing individual policy, you satisfy the mandate and are not subject to the penalty.


What are the penalties if I don’t maintain minimum essential coverage?


The penalties are the greater of 1% of your household income or a flat dollar amount. The result of that calculation is capped at the cost of the second lowest bronze level plan for your family in your area. You’ll be required to pay a penalty for each month of noncompliance. You are allowed a grace period of 3 months of noncompliance without a penalty.

In 2014, the monthly penalty will be the greater of: 1% of the monthly household applicable income over the filing threshold or $7.92 per uninsured adult plus $3.96 per each uninsured minor (capped at $23.75 monthly per household).

In 2015, the monthly penalties jump up to the greater of: 2% of the monthly household applicable income over the filing threshold or $27.08 per uninsured adult plus $13.54 per each uninsured minor (capped at $81.25 monthly per household).

In 2016, the penalties increase again, this time to the greater of: 2.5%  of the monthly applicable household income over the filing threshold $57.92 per uninsured adult plus $28.96 per uninsured minor (capped at $173.75 per household).


How is the penalty calculated?


My estimate of the filing threshold for single individuals in 2014 under age 65 is $10,250 and $20,500 for married couples filing jointly. I calculated that by taking the average % increase of the threshold over the last 5 years and applying it to the 2013 threshold.


Single Threshold

Family Threshold

% increase from previous year






















$10,250 (estimate)

$20,500 (estimate)

2.500% estimate


To calculate the penalty in 2014, all you need to take the household’s income, subtract the 2014 filing threshold (we will use our estimate of $10,250/$20,500 instead), then multiply by 1%.

For example, Bob is single and makes $50,000 per year. Since Bob is single, Bob’s filing threshold is $10,250. To figure out what Bob’s penalty would be, you’d subtract the threshold from Bob’s income ($50,000-$10,250), which leaves you with $39,750. Then, to finish calculating Bob’s penalty, you just need to take 1% of $39,750, which is $397.50 (or $33.13 monthly).

Let’s do one more example, this time with the Smith’s, who are a married couple that files jointly with an income of $150,000. $150,000 minus $20,500 leaves you with $129,500. 1% of $129,500 is $1295.00 (or $107.92 monthly).

Knowing all of this, we can estimate that for any individual with an income over $19,750, 1% of the monthly income will be used to calculate the penalty. For married couples filing jointly, any income over $49,000 would result in 1% of the monthly income being used to calculate the penalty.

There is, however, a cap on how high the penalty can be. The penalty for noncompliance cannot exceed the cost of the second lowest bronze level plan for your family in your area. Any penalty that taxpayers are required to pay for themselves or for their dependents must be included in their return for the taxable year. Those individuals who file joint returns are jointly liable for the penalty.

If you fail to the penalty, you will receive a notice from the Internal Revenue Service informing you that you owe the penalty. The IRS can attempt to collect the funds by reducing the amount of their tax refund in the future. They cannot file notice of lien or file a levy on any property for a taxpayer who does not pay the penalty. Those who do not pay the penalty will not be subject to any criminal prosecution.



Is anyone exempt from needing to obtain minimum essential coverage?


Yes, if you are either:

·        No filing requirement – Your household income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age, and types and amounts of income.

·        Hardship – A Health Insurance Marketplace, also known as an Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage.

·        Unaffordable coverage options – You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.

·        Short coverage gap – You went without coverage for less than three consecutive months during the year

·        Not lawfully present – You are neither a US citizen, a US national, nor an alien lawfully present in the U.S.

·        Religious conscience – You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.

·        Health care sharing ministry – You are a member of a recognized health care sharing ministry.

·        Indian tribes – You are a member of a federally recognized Indian tribe.

·        Incarceration – You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.

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Michael Acosta


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