National Association of Insurance and Financial Advisors

Individual Mandate (ACA)

One of the most well-known provisions in the Patient Protection and Affordable (ACA) is that of the personal coverage requirement. The ACA requires all individuals to have a plan that meets minimum essential coverage (MEC) requirements, or incur a fee penalty. Individuals can meet this requirement through employer based coverage, by individually purchasing an approved plan through an exchange or elsewhere, or by obtaining coverage through Medicare, Medicaid, TRICARE, Veterans coverage or CHIP.

Individuals who do not maintain the MEC requirement throughout a given calendar year will be assessed a fee. The fee assessed for lacking coverage increases each year on the following schedule:

  Adult Child under 18 Family   Income Percentage
2014 $95 $47.50 max $285 or 1% of income over the tax-filing threshold
2015 $325 $162.50 max $975 2% of income over the tax-filing threshold
2016 $695 $327.50 max $2,085 2.5% of income over the tax-filing threshold

After 2016, penalties will be indexed to the cost of living. Individuals not maintaining MEC for the entire calendar year will be assessed a fee for 1/12 of the annual fee for each month they lacked coverage. Individuals can be exempt from paying a fee if they lapse in coverage for less than three consecutive months in a calendar year.

A concern with the personal coverage requirement is that it lacks the enforcement capability to encourage individuals to purchase coverage in an environment of rapidly rising premiums and guaranteed coverage. If the fee for lacking coverage is significantly smaller than the premiums of maintaining coverage, individuals may be inclined to wait until they become ill to purchase insurance. This will leave only the ill and elderly in the risk pool, further increasing premiums.

Policymakers should review the ACA enforcement mechanisms and other factors affecting affordability. By revising incentives or modifying law to ensure health coverage remains truly affordable for customers, significant premium hikes that might discourage the purchase of coverage can be prevented.