Was There Still an Obamacare Penalty for Being Uninsured in 2018

Yes, the ACA’s individual mandate penalty applied throughout 2018, even though the law to eliminate it was enacted in late 2017. If you were uninsured in 2018 and not eligible for an exemption, you’ll owe a penalty when you file your taxes in early 2019. But after that, the federal penalty will not be assessed (some states have their own individual mandate penalties, discussed below).

Nearly nine years after it was enacted, most parts of the Affordable Care Act (aka Obamacare) are supported by the majority of Americans. This includes guaranteed-issue coverage regardless of pre-existing conditions, premium tax credits (subsidies) that make coverage more affordable, coverage for essential health benefits, the elimination of annual and lifetime benefit maximums, and the expansion of Medicaid.

But the individual shared responsibility penalty, aka the individual mandate, has remained an unpopular provision of the law. The mandate went into effect in 2014 and requires all Americans to maintain health insurance coverage unless they’re eligible for an exemption. From 2014 through 2018, there was a penalty assessed by the IRS on people who didn’t maintain coverage and who weren’t eligible for an exemption.

• In 2014, the penalty was $95 per uninsured adult (half that amount per child), up to $285 per family, OR 1 percent of household income above the tax filing threshold.
• The IRS reported that among tax filers who owed a penalty on 2015 returns, the average penalty was $210.
• In 2015, the penalty was $325 per uninsured adult (half that amount per child), up to $975 per family, OR 2 percent of household income above the tax filing threshold.
• The IRS reported that among tax filers who owed a penalty on 2015 returns, the average penalty was $470.
• In 2016, the penalty was $695 per uninsured adult (half that amount per child), up to $2,085 per family, OR 2.5 percent of household income above the tax filing threshold.
• The 2.5 percent of income penalty was slated to remain level in 2017 and beyond, but the flat-rate penalty was to be adjusted annually for inflation, starting in 2017. However, the IRS announced in late 2016 that the inflation adjustment for 2017 would be zero, and the same thing happened for 2018; the flat-rate penalty for 2017 and 2018 thus remained at $695 per adult, half that amount for children, up to $2,085 for a family.

Yes, the penalty is still being assessed. That will change as of 2019 tax returns (filed in 2020), but people who were uninsured in 2018 will still owe a penalty when they file their 2018 tax returns in 2019.

President Trump campaigned on a promise to repeal the ACA and replace it with something else. Republicans in the House passed the American Health Care Act (AHCA) in 2017 but the legislation failed in the Senate, despite repeated attempts by GOP Senators to pass it.

Ultimately, Republican lawmakers passed the Tax Cuts and Jobs Act and President Trump signed it into law in December 2017. Although the tax bill leaves the rest of the ACA intact, it repealed the individual mandate penalty, as of 2019 (other provisions of the tax bill took effect in 2018, but the individual mandate repeal was delayed by a year).

On his first day in office, Trump issued an executive order aimed at « minimizing the economic burden » of the ACA. It essentially instructed federal agencies to be as lenient as possible in their enforcement of ACA taxes and penalties.

The penalty itself was specified in the text of the ACA, meaning that legislation (as opposed to just regulatory action by HHS or the IRS) was necessary in order to change or eliminate the penalty. The tax bill repealed the penalty as of 2019, but until then (including the 2018 tax year), the IRS has to continue to enforce it.

However, under the terms of Trump’s executive order, the IRS can more lenient in terms of granting exemptions from the penalty. And they quietly made a change in February 2017, noting that they would continue to accept « silent returns » for 2016. But that changed in early 2018, when tax returns for 2017 were processed.

Here’s what it all means

• On the front page of Form 1040, the IRS asks all tax filers whether or not they had health insurance coverage throughout the year (this has been the case since 2014). Most Americans do have health insurance, and can just check the box that says « full year health care coverage » and carry on with the rest of the return (this question was previously on line 61, but for the 2018 return, it is near the top, in the section with things like name and address). But for those who didn’t have full-year coverage, the process is a bit more complex: they have to either attach Form 8965 for an exemption, or calculate the applicable penalty.
• For 2014 and 2015 tax years, the IRS did not reject returns when the question about health insurance was left blank (ie, a « silent » return). Most tax filers answered that question anyway (about 90 percent of Americans have health insurance, so this isn’t really an issue for most filers, and millions of tax filers did have penalty assessments for 2014 and 2015).
• For 2016 tax returns, however, the IRS had intended to stop accepting silent returns. They were going to begin rejecting returns that didn’t indicate whether the tax filer had health insurance during the year (and although the IRS does not have their normal enforcement authority for the ACA penalty, it’s always illegal to lie to the IRS).

And also:

The elimination of the individual mandate penalty in 2019 contributed to higher premiums for 2019, because insurers expected that the people likely to drop their coverage after the penalty was eliminated would be healthy, whereas sick people will tend to keep their coverage regardless of whether there’s a penalty for being uninsured. The penalty’s original purpose was to encourage healthy people to join the risk pool, as a balanced risk pool (with enough healthy people to offset the claims costs of the sick people) is necessary for any health insurance product to function.

According to rate filings for 2019 plans, average premiums would have decreased for 2019 if the individual mandate penalty had remained in place (instead, there was a small average increase in rates). The primary reason average premiums increased instead of decreasing for 2019 was the impending elimination of the individual mandate penalty, along with the Trump Administration’s efforts to expand access to short-term plans and association health plans (those plans appeal to healthier individuals, so their expansion has the same effect as the penalty repeal, in terms of reducing the number of healthy people who maintain ACA-compliant individual market coverage).

With the elimination of the federal individual mandate penalty, some states have implemented their own mandates and penalties:

• Massachusetts already had a mandate and penalty, which has been in place since 2006. The state had not been assessing the penalty on people for whom the federal penalty applied, but has started assessing the penalty again for 2019.
• New Jersey has an individual mandate and an associated penalty starting in 2019.
• The District of Columbia also has an individual mandate and associated penalty as of 2019.
• Vermont will have a mandate and penalty starting in 2020. But the state is still working out the details of how it will be implemented.

The ACA’s individual mandate penalty was never popular, but premiums for individual market health insurance are higher now that it has been eliminated, since coverage continues to be guaranteed-issue. Prior to 2014, there was no mandate, but insurance companies in most states could decline applications or charge additional premiums based on applicants’ medical history.

Once coverage became guaranteed-issue (meaning insurers could no longer consider applicants’ medical history), it became necessary to impose some sort of measure to ensure that people maintain coverage year-round. Otherwise, people would be more likely to go without coverage when they’re healthy, and only sign up for coverage when they’re in need of health care, which would result in higher premiums (the limited enrollment periods are the other part of the incentive to ensure that people maintain coverage year-round).