Can I Be Penalized for Not Having Health Insurance?

Whether a penalty applies for not having health insurance has evolved from a clear federal rule to a more complex situation that varies by state. Understanding your requirements depends on knowing both federal and state-level regulations. Ultimately, where you live is the primary factor in determining if you will face a financial consequence for being uninsured.

The Federal Individual Mandate

The Affordable Care Act (ACA) introduced the federal individual mandate, which required most Americans to maintain a minimum level of health insurance to encourage widespread coverage. To enforce this, the law imposed a tax penalty on individuals who went without qualifying health coverage and did not qualify for an exemption. This penalty was calculated and paid when filing federal income tax returns.

The penalty was the greater of a flat dollar amount per person or a percentage of household income. However, the Tax Cuts and Jobs Act of 2017 reduced the federal penalty to zero dollars, effective for the 2019 tax year and all subsequent years. While the technical requirement to have health insurance remains, there is no longer a financial penalty at the federal level for non-compliance.

State-Level Health Insurance Mandates

While the federal government no longer imposes a financial penalty, several states have enacted their own individual health insurance mandates. These states have financial penalties for residents who do not maintain qualifying coverage. As of 2024, these states include California, Massachusetts, New Jersey, and Rhode Island, along with the District of Columbia. Each jurisdiction has its own rules administered through its state tax system.

These state-level mandates require residents to have health insurance that meets specific standards, similar to the “minimum essential coverage” defined under the ACA. Vermont also has a law requiring residents to have health coverage, but there is no financial penalty for non-compliance. Maryland has taken a different approach, allowing uninsured residents to enroll in coverage through a special program when they file their state taxes instead of imposing a penalty.

Calculating State Penalties

The method for calculating the penalty varies significantly among the states that impose one. The penalty is determined by one of two methods: a flat-dollar amount per uninsured individual or a percentage of household income. The final penalty is the greater of these two calculations, ensuring it scales with a household’s financial situation.

In California, the penalty is 2.5% of gross household income above the filing threshold or a flat amount per person, adjusted annually for inflation. New Jersey uses a similar model of 2.5% of household income or an inflation-indexed per-person amount. The District of Columbia and Rhode Island also compare 2.5% of household income to a flat per-person fee, using the higher amount.

Massachusetts uses a different formula, where the penalty is up to 50% of the monthly premium for the lowest-cost plan available through the state’s health insurance marketplace. For example, a family of four in a state with a flat penalty of $900 per adult and $450 per child could face a minimum penalty of $2,700, unless the income-based calculation is larger.

Exemptions from State Penalties

In states with individual mandates, not everyone who is uninsured for a period will automatically face a penalty. Each state provides exemptions that can relieve individuals of the financial consequence. These exemptions must be formally claimed by completing a specific form with the annual state tax return. A common exemption is for short gaps in coverage, such as being uninsured for less than three consecutive months.

Other exemptions are also available. A household with income below the state’s tax filing threshold is exempt. An exemption also exists if the cheapest available health plan is deemed “unaffordable” because its cost exceeds a certain percentage of household income. States also offer hardship exemptions for circumstances like:

• Homelessness
• Bankruptcy
• Eviction
• Experiencing a natural disaster

To claim a hardship exemption, one must apply for and receive a certificate from the state’s health insurance marketplace.