What is an Individual Mandate?

The individual mandate refers to Section 5000A of the Patient Protection and Affordable Care Act (PPACA), also known as 'Obamacare' or the more generic 'health care reform.' PPACA is a bill signed into law on March 23, 2010, by President Barack Obama in an effort to reform many aspects of the health care industry.

How Does an Individual Mandate Work?

Section 5000A requires all taxpayers and their dependents to have health insurance by January 1, 2014. Failing to purchase health insurance by that time results in a fine of up to $695, payable to the IRS on the taxpayer’s annual tax return. The penalty rises by the cost of living each year.

Some people are exempt from the requirement to purchase insurance:

  • Members of health care sharing ministries that are registered nonprofit organizations and have religious beliefs regarding medical treatment or expense sharing
  • People not in the United States
  • People who are incarcerated
  • People who cannot afford coverage
  • Members of Indian tribes
  • People who had gaps in coverage spanning less than three months
  • People who suffer a hardship obtaining coverage, as determined by the Secretary of Health and Human Services

This last bullet involves a somewhat sophisticated calculation, but generally exempts people for whom “minimum essential” coverage costs more than 8% of the individual’s household income. The Secretary of Health and Human Services can adjust the 8% number depending on the growth rates of premiums and incomes in a year.

It is important to note, however, that the legislation specifically forbids criminally prosecuting those who do not pay the fine; it also forbids placing liens and levies on taxpayer property for failing to pay the fine.

According to the legislation, individuals are required to own policies that have at least one of the following characteristics:

  • The coverage is government-sponsored (i.e., Medicare, Medicaid, Veterans Affairs, etc.)
  • The coverage is through an employer-sponsored plan
  • The coverage is an individual policy offered in the individual market
  • The coverage is under a grandfathered health plan
  • The coverage is part of “other” acceptable plans (such as a state health benefits risk pool)

Why Does an Individual Mandate Matter?

The individual mandate is different from the employer mandate, which generally requires employers with at least 50 employees to offer affordable coverage plans to employees. PPACA is perhaps the most well-known piece of legislation from the Obama administration, and its future remains to be seen. Its influence, however, will likely persist indefinitely.