Health Insurance Mandate under the Affordable Care Act
A significant change involving the penalties imposed for the failure to secure health care coverage has occurred as a result of the newly passed tax reform bill (2017 Tax Cuts and Jobs Act). Under a provision of the law, effective for months beginning January 1, 2019, individuals who fail to secure coverage for themselves and their dependents will no longer be assessed a financial penalty. That’s right, the amount owed by any taxpayer under the individual health insurance mandates “shared responsibility payment” for lack of minimum essential health insurance for themselves and their dependents is zero. No other Affordable Care Act tax or provision is affected.
To put things in perspective, beginning in 2014, a penalty was imposed on applicable individuals for each month they failed to maintain “minimum essential coverage” for themselves and their dependents. This penalty is also referred to as a “shared responsibility payment,” and the requirement to maintain minimum essential coverage is known as the “individual mandate.”
The monthly penalty amount for a taxpayer is equal to 1/12 of the greater of:
- a flat dollar amount equal to the applicable dollar amount for each of the individuals who were not properly insured by the taxpayer, up to a maximum of 300 percent of the applicable dollar amount, or
- an applicable percentage of income.
The applicable dollar amount is $695 for 2017, with the maximum penalty being $2,085 due to the 300 percent limitation. For 2018 it is $695, adjusted for inflation. The applicable percentage of income is 2.5 percent for tax years beginning after 2015. But now under the new law the amount of the penalty imposed on individuals without health insurance is zero.
Individuals with coverage during the year should still expect to receive a reporting form. Marketplace Exchanges provide Form 1095-A. An individual with employer or other health coverage should expect to receive Form 1095-B, or Form 1095-C. These forms will continue to be useful in 2017 and 2018 in helping to determine if a person maintained coverage during the year and if a shared responsibility payment may be due. Presumably, Exchanges will continue to issue Form 1095-A after 2018 since the form is necessary for premium tax credit purposes.
Whether or not Forms 1095-B and 1095-C will continue to be required after 2018 has not been announced. But consider this, employers that do not offer their employees minimum essential coverage under an eligible employer sponsored plan may still be liable for large employer shared responsibility payments since this section of the law was not changed. Additionally, individuals who are eligible for minimum essential coverage through their employer for any month during the year still would not qualify for the premium tax credit for that month were they to seek coverage from the Exchange. Finally, reimbursements under a qualified small employer health reimbursement arrangement (QSEHRA) are required to be included in an employee’s income unless the employee had minimum essential coverage under a qualifying small employer plan.
Bottom line. The revocation of the shared responsibility penalty has been removed and with it could come some changes in how individual employees choose to obtain their health care coverage. Some of these changes could affect employers especially if individuals decide they can purchase coverage cheaper elsewhere. For employers, large and small, the responsibilities under the Affordable Care Act have not changed so you should continue with your current practices until otherwise instructed to do so.