Health care reform's individual mandate requires most Americans to maintain minimum essential health insurance coverage. Beginning in 2014, individuals who do not comply with the individual mandate must make a "shared responsibility payment" to the federal government. The payment, which is labeled a "penalty" under the Affordable Care Act but has been determined to be a "tax" by the United States Supreme Court, is calculated as a percentage of household income, subject to a minimum based on a dollar amount and a maximum based on the average annual premium the person would have to pay for qualifying health coverage. For example, in 2016, the penalty will be 2.5% of an individual¹s household income, but no less than $695 and no more than the average yearly premium for insurance that covers 60% of the cost of 10 specified services. The penalty is paid to the Internal Revenue Service with an individual¹s income taxes.
According to new Congressional Budget Office estimates, approximately 6 million people will be required to pay a penalty for not maintaining appropriate health coverage. This new estimate is significantly higher than the CBO's estimate in 2010 when the Affordable Care Act was passed.
The average penalty is expected to be $1,200 in 2016 and will have an impact on individuals making up to or less than 5 times the federal poverty level. The CBO attributes most of the increase in the penalty estimate to changes in the economy, additional new federal legislation, higher unemployment, and lower wages.
While the individual mandate was intended to increase the number of insured individuals, particularly those in the middle class, new estimates indicate that it might have the unwanted effect of increasing taxes on lower income individuals, without increasing the actual number of individuals with health coverage.
