Determining Individual Mandate Penalty Cap

Determining Individual Mandate Penalty Cap

Most indiviuals are required to have health insurance coverage for themselves and their family members. This rule took effect in 2014 under the Affordable Care Act (ACA) and is often referred to as the individual mandate. If an individual doesn’t meet the mandate then there is a penalty. The penalty amount is capped at the annual national average bronze plan premium. The Internal Revenue Service (IRS) released a Revenue Procedure that provides these monthly national average premium for bronze level plans. These are the national average premium for bronze level health plans per month:

• $204 per individual
• $1020 per family (with 5 or more members)

Individuals will be penalized under the individual mandate if they don’t obtain minimum essential coverage. The penalty must be paid when the person files their income tax return. The amount that an individual must pay will be capped based on the annual national average premium for QHPs that have a bronze level of coverage, provide coverage for the individual’s family members who are liable, and are offered through exchanges for that plan year.

There are four factors when setting individual premium rates under the ACA. First the rating area is considered which is a geographic location in all or a portion of a state. Second, age distinguishes people between those individuals under 21 and those over 21. Third, tobacco use is considered however the IRS ensures that higher health care costs associated with tobacco use don’t raise the individual mandate. Lastly,  family size helps determine premiums by adding each family member individual premiums together.  These factors determine the premium for an individual who does not obtain minimum essential  coverage by using a population-weighted average of the premium in each county that would be charged to a 21 year old who doesn’t use tobacco.

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