No Penalty Means More Health Insurance Choices In Most States

Open enrollment ends in a few weeks, and it’s possible you haven’t given it much thought because you want to keep your current plan. You can absolutely do this. It can also be a big mistake to automatically assume the same coverage is the best health insurance choice year after year.

Carriers enter and exit the market. Plan costs and networks fluctuate. Life circumstances change. Do yourself a favor and take a moment to shop around, especially now. 

It used to be that most Americans had to have minimum essential coverage under the Affordable Care Act’s (ACA) individual shared responsibility provision. Those who were not exempt from this mandate owed a federal penalty at tax time. That federal tax penalty for not having health insurance was repealed on Jan. 1, 2019. 

Now that an individual mandate is no longer enforced in most states, there’s no dearth of coverage options. You can enroll in an individual major medical plan through federal and state exchanges, as well as in the private market. Medicaid remains available to those who qualify. You can also choose plans that do not include minimum essential coverage — for example, short-term medical insurance. 

So how do you decide? It all depends on your situation.

  • Do you qualify for a financial subsidy on the exchange? If not, can you afford to pay full price for an ACA plan? 
  • Are you in good health? Or do you have medical conditions that require ongoing care? 
  • What do you qualify for? If you can’t get Medicaid and can’t afford Obamacare, you need an alternative option.
  • Will you want (or need) coverage that includes all of the ACA’s essential health benefits and preventive services?
  • Can you qualify for health insurance that requires underwriting? Or do you need something that is guaranteed, as is the case with ACA plans?
  • Do you live in a state that enforces its own individual mandate with a tax penalty?

These are a few questions to consider as you survey your choices. Subsidy eligibility can be a helpful place to begin. Knowing whether or not your state has its own individual mandate and tax penalty can also help guide your decision.

No Subsidy? You May Want an Alternative

For the 2020 coverage year, unsubsidized ACA premiums average $331 per month for the lowest-cost bronze plan, $442 for the lowest-cost silver plan, and $501 for the lowest-cost gold plan.

If you don’t qualify for a premium tax credit through an exchange, you’ll have to pay full price for an individual major medical plan — no matter where you buy it. You may want to look at short-term health insurance or other alternatives such as faith-based or health sharing ministries (more on these in a moment).

Short-term health insurance plans provide benefits that help lessen what you pay out of pocket for unexpected medical care rather than the full scope of healthcare services required of long-term options. This is what makes them relatively budget-friendly.

Because they are designed as a temporary solution, short-term plans don’t include all of the ACA’s essential health benefits. Instead, short-term policies typically include benefits for things like doctor office visits, hospitalization and emergency care. That said, different companies offer different plans; some may include additional benefits such as dental and vision discounts as well as coverage for select preventive care screenings.  

Faith-based plans and healthcare sharing ministries can also be an economical coverage option and are available in every state. They offer a way to pool medical expenses with like-minded people in addition to receiving other types of support such as prayer. If you decide this is the right choice for you, keep in mind that these plans are not insurance and are not regulated.

While short-term plans and other alternatives are available year-round and can offer good coverage, you generally need to be in great health to qualify and not suffer from pre-existing conditions. Short-term health insurance is not guaranteed issue like ACA plans. Policy duration limits and availability will also vary by state — you can enroll in a plan for as few as 30 days but not all states allow coverage up to 364 days.

ACA Plans May Remain Your Best Option

Under some circumstances, an ACA plan should be your go-to. Foremost, it’s best to shop for individual major medical insurance through the federal and state exchanges to see if you qualify for subsidies.

In addition to premium tax credits, which lower your monthly health insurance payments, you could be eligible for cost-sharing reductions. You may qualify if your household income is below 250% of the federal poverty level. Cost-sharing reductions can lower your plan deductible, copayment and coinsurance amounts when you enroll in an exchange-based silver plan. 

If you are subsidy-eligible, whether you qualify for a tax credit or a tax credit along with cost-sharing reductions, be truthful about your taxable household income and report changes to it as soon as possible. You could have to pay back a portion of your premium tax credit if you underestimate what you earn.

It’s also likely an ACA plan is your best option if you have a pre-existing condition or require ongoing medical care. In these situations, you may not qualify for short-term health insurance or other alternative coverage and you will probably want access to all of the essential health benefits an ACA plan provides. 

Additionally, you may want to stick with a major medical plan if you live in a state with its own individual mandate and penalty. 

Which States Have a Health Insurance Mandate + Penalty?

While the federal penalty may be a thing of the past, six states have imposed their own individual mandates. These states require residents to have minimum essential coverage. In all but one of them, a tax penalty will be owed by those who do not have minimum essential coverage and are not exempt.

The following statewide mandates are either in effect now or will take effect in 2020:

California  – Effective date: Jan. 1, 2020. 

Penalty: 2.5% of salary or $695 per adult and $347.50 per child, or up to $2,085 per family, whichever is greater.

Up to 850,000 lower-income residents will be able to receive financial assistance in paying their premiums, and subsidies will be offered to residents who earn less than 600% of the federal poverty level. 

Massachusetts – Effective date: 2006 — this state penalty predates the ACA.

Penalty: Amount varies depending on income, age and family size. Penalties are capped at no more than half the lowest priced plan available to an individual through Massachusetts’ health insurance exchange.

New JerseyEffective date: Jan. 1, 2019.

Penalty: Amount varies based on income, age and family size. Penalties are capped at the cost of the statewide average premium for bronze plans.

Rhode Island – Effective date: Jan. 1, 2020.

Penalty: 2.5% of income above the filing threshold or a flat dollar amount of $695 per adult and $347.50 per child, whichever is greater. 

If someone owes the penalty, Rhode Island’s Division of Taxation is authorized to reduce the person’s personal income to cover it. If someone is penalized, they will be eligible for a special enrollment period that lasts 60 days from the date the penalty is assessed.

Vermont – Effective date: Jan. 1, 2020.

Penalty: No penalty will be imposed. Information obtained from the Department of Taxes will be used to provide targeted outreach to Vermont residents without minimum essential coverage.

Washington, D.C. – Effective date: Jan. 1, 2019. 

Penalty: 2.5% of salary or $695 per adult and $347.50 per child, up to $2,085 per family, whichever is greater.

For the most part, each state’s exemptions are similar to the old federal exemptions, but you’ll want to familiarize yourself with them if you think you qualify. Keep in mind that you may need to apply for certain exemptions. To learn more about your state’s mandate, penalty and exemptions, visit your state’s exchange.

More State Mandates Could Follow

Others have proposed legislation that would impose mandates and penalties in additional states. The following states are considering (or have considered) individual mandates, but have not yet passed them into law:

  • Connecticut
  • Hawaii
  • Maryland
  • Minnesota
  • Washington

At least one study shows that if every state were to adopt an individual mandate, more people would retain coverage and premiums in the non-group market would be lower. If additional states look to sustain or improve the health of their individual major medical markets, we may see more proposed legislation for mandates.

In the meantime, if you live in one of the 45 states without a mandate and don’t qualify for a subsidy, you may be considering your 2020 coverage options beyond an ACA plan. If you do qualify for a subsidy, you may be revisiting the exchange to see what else is available.

Yes, there’s a lot to consider as open enrollment draws to a close, but it is worth your time and effort to look at the entire scope of the market before re-enrolling in the same plan. You could find coverage that better suits your healthcare needs. You could find out you qualify for an ACA subsidy — or don’t qualify for one. You could find a plan that saves you money.