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What is the individual shared responsibility provision?

        Money | Taxes

A whole lot of people lined up in January 2014 to sign up for health care (and thus avoid the individual shared responsibility provision).
A whole lot of people lined up in January 2014 to sign up for health care (and thus avoid the individual shared responsibility provision).
Joe Raedle/Getty Images

"Individual shared responsibility provision." Strung together, those words sound like a fictional government program in a dystopian novel, or maybe a new HR policy you and your co-workers aren't quite sure you're on board with. Plus, it's safe to say the oxymoronic "individual shared" bit isn't really self-explanatory.

So when I tell you that the individual shared responsibility provision is actually a tax stipulation designed to increase enrollment in health insurance plans, don't worry if it wasn't your first guess. "Provision" may sound nice, but in this case, it's really more of a penalty. Here's why it was established.

When President Obama made the Affordable Care Act a cornerstone of his administration, it gave a lot of people pause — some of those "people" being health insurance companies that could no longer decline to cover folks with pre-existing conditions or past illnesses. The companies argued that healthy people probably wouldn't buy insurance until a real medical condition cropped up, which would mean the insurance companies wouldn't be able to make enough money on healthy people to pay out benefits for the sicker ones.

The result is the individual portion of the shared responsibility provision. According to the provision, people — and that means virtually every man, woman and child in the United States — have to be covered by health insurance. Get it through your employer, buy it from the health insurance marketplace, shop for an individual plan, or get it from a government program like Medicare or Medicaid — whatever works, but just do it. It's the law.

If you don't and you're not eligible for any of the exemptions from this provision, you're subject to a tax penalty. For the 2014 tax year, the penalty is the greater of these two options: a flat rate of $95 per uninsured adult and $47.50 per child (with a $285 max per family) or 1 percent of your household income. For the 2015 tax year, that will rise to $325 per adult and $162.50 per child (with a $975 max per family) or 2 percent of family income. In 2016, each person will pay $695 — or 2.5 percent of the family's combined income. Those penalties are prorated if you're without insurance for only parts of the year.

But individuals aren't the only ones footing the bill. The individual part of the shared responsibility provision is just that — the individual part. Insurance companies, the government and employers also have to make a commitment to their end of the health insurance bargain. Employers, for example, have to offer health insurance to their employees, as long as their company is large enough to qualify [source: IRS]. If they don't, they have to pay a penalty, too [source: IRS].

There are a few exemptions from the individual provision, but by and large everyone is expected to be covered. And beware: As we outlined, the penalties for those who aren't covered by insurance increase every year until 2016.


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