PPACA Penalty Q&A

Employees Without Health Insurance May Face Penalties–5 Q&As

The individual mandate under Health Care Reform, which is expected to go into effect on January 1, 2014, requires individuals of all ages (including children) to have minimum essential health coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. Below are five important things to know about the requirement.

1. What counts as minimum essential coverage?
Minimum essential coverage includes employer-sponsored coverage (including COBRA coverage and retiree coverage), coverage purchased in the individual market, Medicare Part A coverage and Medicare Advantage, Children’s Health Insurance Program (CHIP) coverage, and certain other types of coverage.

Minimum essential coverage does not include coverage providing only limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or disability policies.

2. If an employee receives coverage from a spouse’s employer, will that employee have minimum essential coverage?
Yes. Employer-sponsored coverage is generally minimum essential coverage. If an employee enrolls in employer-sponsored coverage for himself and his family, the employee and all of the covered family members have minimum essential coverage.

3. Do an employee’s spouse and dependent children have to be covered under the same policy or plan that covers the employee?
No. An employee, his or her spouse, and dependent children do not have to be covered under the same policy or plan. However, the employee, spouse, and each dependent child for whom the employee may claim a personal exemption on his or her federal income tax return must have minimum essential coverage or qualify for an exemption, or a payment will be owed.

4. A company’s health plan is “grandfathered.” Does the employer’s plan provide minimum essential coverage?
Yes. Grandfathered group health plans provide minimum essential coverage.

5. What is the amount of the individual mandate penalty?
The amount of any payment owed takes into account the number of months in a given year an individual is without minimal essential coverage or an exemption. For 2014, the penalty is the higher of:

  • 1% of the individual’s yearly household income (the maximum penalty is the national average yearly premium for a bronze plan); or
  • $95 per person for the year, or $47.50 per child under 18 (the maximum penalty per family using this method is $285).

The fee increases every year. In 2015, the penalty is 2% of income or $325 per person.

For more information, you may review additional questions and answers from the IRS. Be sure to visit our Summary by Year to review other key changes under Health Care Reform that are coming next year.

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