The Affordable Care Act (ACA), signed into law in 2010, was designed to make health insurance coverage more affordable for Americans through the creation of tax subsidies while also opening up Medicaid eligibility to more low-income individuals and families. The ACA effectively made having health insurance mandatory—not having it meant you would incur a tax penalty. But what about now? What is the penalty for not having health insurance?
- Health insurance coverage is no longer mandatory at the federal level, as of Jan. 1, 2019.
- Some states still require you to have health insurance coverage to avoid a tax penalty.
- Going without health insurance saves you money since you’re not paying premiums, but it could put you at financial risk if you get injured or develop a serious illness.
Affordable Care Act’s Coverage Mandate
Under the ACA, also called Obamacare, Americans who were not otherwise eligible for an exemption were required to have health insurance coverage for themselves and their families. Failure to have minimum health insurance triggered a tax penalty. At the same time, the ACA allowed for the creation of a premium tax credit to help Americans offset some of the cost of getting health insurance through the Health Insurance Marketplace.
This rule changed in January 2019, when the tax penalty mandate for health insurance was eliminated. While the ACA technically still exists, Americans who choose not to maintain health insurance for themselves or their family members in 2019 and beyond won’t be penalized at tax time. It’s estimated that as many as four million Americans will choose not to have health insurance coverage this year as a result of the penalty being eliminated.
As a result of the American Rescue Plan Act of 2021, all taxpayers with insurance bought on the ACA Marketplace are now eligible for the ACA premium tax credit. Previously, filers were ineligible if their income exceeded 400% of the federal poverty line.
State-Imposed Rules on Health Insurance Coverage
While the federal government no longer requires you to have health insurance, a handful of states have mandates on the books regarding coverage or are trying to pass laws to make health insurance mandatory.
The states that require coverage include:
- New Jersey
- Rhode Island
Washington, D.C., also requires residents to purchase health insurance. Other states—including Connecticut, Hawaii, Maryland, Minnesota, and Washington—have also attempted to pass legislation that would make health insurance mandatory for their residents.
In states where health insurance is mandatory, the rules for getting and maintaining coverage are similar to those under the ACA, with coverage available through state-run health insurance marketplaces.
No Mandatory Health Insurance: Advantages
The primary upside to health insurance no longer being mandatory at the federal level is the money you don’t have to spend on premiums that remains in your pocket. That could be helpful if you’re trying to pay off student loans or save money toward a down payment on a home.
Of course, if your employer offers some type of health insurance coverage as part of your benefits package, you may be able to get affordable coverage without having to shop around for it.
No Mandatory Health Insurance: Disadvantages
It takes a very savvy healthcare consumer to score discounts from providers, not all of whom will necessarily go along with such requests. Normally, insurance companies, not individuals, are the ones negotiating with hospitals and doctors to lower prices for large member groups.
However, the main drawback when health insurance isn’t mandatory is the risk that you assume when choosing the self-pay route. The downside of going without health insurance could be substantial if you end up needing expensive medical care and you don’t have the money to pay for it from savings or your monthly income.
Even a minor health issue could result in a financial setback. According to UnitedHealth Group, the average cost of an emergency room visit to treat issues that could be handled at an urgent care or primary care facility was just over $2,000 in 2019.
That cost is 10 times higher compared to seeing an urgent care doctor and 12 times higher than primary care, but people who don’t have health insurance may assume the ER is their only option if they get sick or hurt. Additionally, illness and medical bills are known contributors to bankruptcy.
Options for Health Insurance Coverage
Before going without health insurance, Nicholson reviewed all of her options, which included being added to her husband’s plan and enrolling in a healthcare cost-sharing program. These are also things that you might consider if you’re without health insurance or thinking about canceling your plan since coverage is no longer mandatory.
You may consider short-term health insurance or catastrophic care policies, but these have their limitations in terms of what’s covered and who’s eligible. Applying for Medicaid may also be an option, but whether you qualify is dependent on your income and family size. Each state has different guidelines with regard to the income and asset thresholds allowed for eligibility for Medicaid coverage.
Is it Illegal to Go Without Health Insurance?
The federal government no longer requires individuals to have health insurance. However, a handful of states and the District of Columbia have instituted a health insurance coverage mandate, and most carry a penalty for not doing so. If you live in California, Massachusetts, New Jersey, Rhode Island, or Washington, D.C., you must have insurance or pay a penalty. Vermont’s mandate does not include a penalty for noncompliance.
Why Do I Need Health Insurance?
It’s important to have health insurance, even if you are young and in good health, because accidents and unexpected illnesses can have a serious impact on your finances. For example, a broken leg can cost you thousands of dollars, even if no surgery is needed. In addition, most health insurance plans give you access to preventive services—like shots or screening tests—for free.
How Many Americans Are Uninsured?
The number has fluctuated over the past few years, but the number of Americans without insurance has generally been trending lower since the enactment of the Affordable Care Act (ACA). Put simply, the ACA has made it much easier for uninsured Americans to obtain health insurance. In 2010, when the ACA was enacted, 48 million Americans were without health insurance. In 2022, that number had decreased to 30 million.
The Bottom Line
Not being required by federal law to have health insurance coverage doesn’t mean you don’t need it. If you don’t have health insurance, take time to research coverage options to determine which is the best fit for your healthcare needs and budget.