Years ago, I never gave health care coverage a thought. I signed up for whatever plan my employer provided, and every week or so, payroll deducted the amount of the premium from my paycheck.
Only when I used the insurance did I actually find out whether it was any good. One year I needed a stress test. When I gave the receptionist my insurance card, she looked at me as if my hair were on fire. "I've never heard of this insurance company before," she said. I took the test and paid $700 out of my own pocket.
These days, I buy my own insurance through the health insurance marketplace set up by the Affordable Care Act. The other day during open enrollment, I upgraded to a "silver" plan from last year's "bronze." The new plan is affordable — even without the premium tax credit — and it covers what ails me.
What makes the ACA work? Under the act, the federal and state governments, insurance companies and employers are obligated to make health coverage both available and affordable. At the plan's heart, is the individual shared responsibility provision, which is based on the idea that it takes the individual participation of everyone to make health care more affordable overall. What is this provision, and what does it do? We have all the answers for you.
10: What is the individual shared responsibility provision?
This provision of the Affordable Care Act requires almost everyone (young, old, employed, unemployed) to have basic health insurance called minimum essential coverage. The provision, also known as the individual mandate, outlines a person's role in both making and obtaining affordable health care. You can only ignore the mandate under certain circumstances.
If you do not qualify for an exemption and refuse to buy health insurance, the government will penalize you. The penalty is known as the shared responsibility payment, and you pay it when you file your taxes. The Supreme Court has ruled the payment is legal because the penalty is a tax [source: IRS].
9: To whom does the provision apply?
Most Americans of all ages living in the United States must abide by the individual shared responsibility provision. In addition, foreigners and "resident aliens" who live in the U.S. long enough during the calendar year and pay income taxes also must have minimum essential coverage.
However, people who are in the country for a short time and who are not required to pay income taxes don't have to follow the law. In case you're wondering, the IRS considers people resident aliens if they have a green card, which means you are a "lawful permanent resident" [sources: IRS, IRS].
8: What counts as minimum essential coverage?
What does minimal coverage actually mean? If you participate in an employer-sponsored health plan or COBRA, or have health care coverage as a retired person, you have the requisite coverage.
Moreover, you, your kids, your spouse and any other dependents likely have minimal coverage if you purchase health insurance on your own or through the health insurance marketplace. You're also covered if you participate in Medicare Part A or Medicare Advantage; Medicaid; the Children's Health Insurance Program; or have health insurance through the Department of Veterans Affairs. In general, other categories include the following [sources: IRS, USAF Services]:
- Most types of TRICARE coverage, which covers medically necessary treatments.
- Peace Corps volunteers who have coverage through that agency.
- Civilian employees who fall under the Department of Defense's Nonappropriated Fund Health Benefit Program.
- Those who participate in the Refugee Medical Assistance program.
- People working at universities who are covered by self-funded insurance.
- Residents who have insurance through state high-risk pools.
7: Who's exempt?
As we said before, the individual shared responsibility provision pretty much requires everyone to have some form of health insurance. However, certain people can ask the government to exempt them from the law. In some cases, the IRS can exempt people, and in other cases a person has to apply for the exemption through the health insurance marketplace.
Who can apply? You might be eligible if you have religious objection; are a member of a federally recognized Native American tribe; are doing time in prison or are an illegal alien. Moreover, you might be exempted if your minimum income levels are so low that you don't have to pay income taxes. You also can ask for an exemption if you suffered some type of financial hardship that forced you to face a significant increase in living expenses. Domestic hardships, such as the death of a spouse or a weather-related disaster, count too. You also can claim an exemption if the price of the lowest insurance premium is more than 8 percent of your household income [sources: IRS, HHS].
6: Do children and the elderly have to abide by the individual shared responsibility provision?
Senior citizens must have minimum coverage as do children, unless they qualify for an exemption. As we said before, Medicare Part A, Medicare Part C and the Children's Health Insurance Program all are qualifying plans. Any single or married filer who claims a child as a dependent for income tax purposes is responsible for making sure that child is covered [source: IRS].
More Questions and Answers on the Shared Responsibility Provision
5: Does the provision affect me if I'm on my spouse's plan from work?
If you and your children are covered by your spouse's employer-sponsored plan, you're likely good to go. Most employer-sponsored plans provided minimum essential coverage. In addition, you and your children don't have to be covered under the same policy [source: IRS].
4: How much is the penalty?
You will be taxed if you do not adhere to the individual mandate. The idea behind the tax is to make sure most everyone has health care coverage. Without the penalty, people would not opt to buy insurance even though the law requires insurance companies to provide coverage for everyone regardless of pre-existing conditions. If that were the case, the cost of health insurance would skyrocket as the sick flooded the market while the healthy stayed away.
If you didn't have coverage for all of 2014, the penalty is 1 percent of your household income, or $95 for adults and $47.50 per child under the age of 18. You pay whichever amount is greater. The maximum a family would pay, however, is $285.
In 2015, the penalty will be 2 percent of your annual household income, or $325 per adult and $162.50 per child, up to a maximum of $975 per family. As before, you'll pay whichever amount is greater. In 2016, each person will pay $695 — or 2.5 percent of the family's combined income. When inflation goes, up, so do the penalties [source: Healthcare.gov].
3: If I'm unemployed, do I have to pay the penalty?
If you cannot afford insurance based on your income, you might be able to get an exemption. However, if you don't qualify, you will have to pay the penalty when you file your income taxes. If you don't, the IRS will deduct it from your tax refund [source: Healthcare.gov].
2: If I change health coverage during the year and there's a short gap in coverage, do I still pay the penalty?
Many of us have been here more than once. We leave a job and our employer-sponsored health coverage, and start another job weeks or even months later. If that or any other similar circumstance happens to you, are you still obligated to pay the penalty for such a short gap in coverage? If the gap is less than three months, you can ask for an exemption and not pay the tax. If you're not granted an exemption, 1/12 of the yearly penalty applies to each month you don't have insurance [source: Healthcare.gov].
1: What happens if I do not have minimum coverage and can't afford the penalty?
Death and taxes. It is often said they are the only two constants in a person's life. Make no mistake about it, the government wants its money, and the IRS will work with you if you can't pay the penalty. However, the law stops the IRS from placing a lien on your property, but it will deduct the penalty if you have a tax refund [source: IRS].
Many Americans don't think about their tax bills until the new year. But there are things you need to do before Dec. 31 if you want to pay less later.
Author's Note: 10 Questions and Answers on the Shared Responsibility Provision
Whatever you might think of the ACA, the program works for me. (Please don't send any angry emails.) Up until last year, I was paying excessively for health care coverage. It was so expensive and my deductible was so high that I never went to the doctor. I couldn't afford it. I would have foregone coverage completely had I been in my 20s and didn't own a house. These days, however, my doctor and I are almost best buds.
- Healthcare.gov. "Fees and Exemptions." (Nov. 22, 2014) https://www.healthcare.gov/fees-exemptions/fee-for-not-being-covered/
- Internal Revenue Service (IRS). "The Individual Shared Responsibility Provision." (Nov. 19, 2014) http://www.irs.gov/uac/Individual-Shared-Responsibility-Provision
- Internal Revenue Service (IRS). "Topic 851: Resident and Nonresident Aliens." (Nov. 19, 2014) http://www.irs.gov/taxtopics/tc851.html
- Internal Revenue Service (IRS). "Questions and Answers on the Individual Shared Responsibility Provision." (Nov. 19, 2014) http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision#Who is Affected
- TurboTax. "What is the Individual Shared Responsibility Provision?" (Nov. 19, 2014). https://turbotax.intuit.com/tax-tools/tax-tips/Health-Care/What-is-the-Individual-Shared-Responsibility-Provision-/INF26072.html
- U.S. Department of Health and Human Services (HHS). "Guidance on Hardship Exemption Criteria and Special Enrollment Periods." June 26, 2013. (Nov. 21, 2014) http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/exemptions-guidance-6-26-2013.pdf
- USAF: "NAF Insurance Benefits." (Nov. 21, 2014) https://www.usafservices.com/NAFInsuranceBenefits.aspx