QuickTake: Individual Mandate Is Increasingly Important to Adults with Nongroup Coverage


Michael Karpman, Fredric Blavin, and Stephen Zuckerman

October 26, 2016


The individual shared responsibility provision of the Affordable Care Act (ACA), often referred to as the “individual mandate,” requires nonexempt individuals and their families to have health insurance coverage throughout the year or pay a tax penalty, with the amount of the tax penalty increasing over time.1 This provision, coupled with the ACA’s premium and cost-sharing subsidies, aims to promote the viability of the Marketplace by mitigating problems associated with adverse selection. As the tax penalty phases in, it is expected to lead to increased enrollment in coverage under the ACA, particularly among younger, healthier adults (Buettgens and Carroll 2012; Eibner and Saltzman 2015).


The individual mandate penalty took effect in early 2014 and was fully phased in for tax year 2016. Individuals who are not exempt from this requirement and did not have coverage in 2016 will pay the greater of the following amounts when they file their tax returns in 2017:

  • $695 per adult and $347.50 per child, up to a family maximum of $2,085; or
  • 2.5 percent of household income above the filing threshold, up to a maximum of the national average premium for a bronze-level Marketplace plan multiplied by the number of uninsured family members (capped at a maximum of five people).2

The tax year 2015 penalty amount was significantly lower, set at the greater of $325 per adult and $162.50 per child, or 2.0 percent of household income.


In this QuickTake, we use data from the March 2015 and March 2016 rounds of the Health Reform Monitoring Survey (HRMS) to assess changes in the importance of the tax penalty in health plan enrollment decisions over a period in which the individual mandate penalty substantially increased. We focus on nonelderly adults with incomes above 100 percent of the federal poverty level because poor adults are likely to qualify for one of the following exemptions to the penalty: (1) their income is below the tax filing threshold, (2) they do not qualify for Medicaid because their state did not expand eligibility under the ACA, or (3) they do not have access to coverage deemed affordable (i.e., costing less than 8.13 percent of their household income).3 For simplicity, we refer to these individuals as nonpoor adults.


In March 2016, 29.9 percent of nonpoor insured adults reported that the penalty was very or somewhat important in their enrollment decision—a statistically significant increase from 28.6 percent in March 2015 (figure 1). Nonpoor adults with nongroup coverage were the only coverage group for whom the tax penalty amount had greater importance over time. The share of adults with nongroup coverage who reported that the penalty was very or somewhat important in their enrollment decision increased from 44.1 percent in March 2015 to 51.5 percent in March 2016.4 Among nongroup enrollees, the penalty was important for 61.9 percent of adults with Marketplace coverage in March 2016, compared with 35.8 percent of adults with non-Marketplace nongroup coverage (data not shown).5 In contrast, there was no significant change in the importance of the penalty during this period for nonpoor adults with employer-sponsored insurance or public coverage. About one-quarter of those with employer-sponsored insurance and about half of those with public coverage reported that the penalty was a very or somewhat important consideration in both March 2015 and March 2016.



We also asked all respondents how much they thought the penalty would be for not having coverage in 2016, using a multiple-choice format. Respondents were given five options: one was the correct answer, three were incorrect answers, and one was “I am not sure.” Across all of the insurance subgroups, more than 80 percent of nonpoor adults could not identify the correct penalty amount (data not shown). Nongroup enrollees and uninsured individuals—for whom the trade-off between paying the penalty and paying a premium may be more salient—were slightly better informed about the penalty amount than others, but were still largely uninformed. These results are consistent with research on Massachusetts’s health reform law, which suggests that awareness of the possibility of paying a substantial tax penalty may be a more important factor in enrollment decisions than specific knowledge about the penalty provision (Dorn, Hill, and Hogan 2009).


Individual mandate penalties need to be large and visible enough to curb adverse selection by encouraging younger and healthier individuals to purchase coverage. These results indicate that an increasing share of adults with nongroup coverage, particularly those who purchased plans through the Marketplace, deemed the penalty very or somewhat important in their enrollment decision. To help assess the long-term viability of the Marketplace, it will be important to monitor the extent to which the number of families paying the penalty has declined with the full phase-in of the penalty, as well as how many adults continue to go without coverage in 2017 because they find paying the penalty more affordable than paying for coverage.6




Blinder, Alan S. 1973. “Wage Discrimination: Reduced Form and Structural Estimates.” Journal of Human Resources 8 (4): 436–455.


Buettgens, Matthew, and Caitlin Carroll. 2012. Eliminating the Individual Mandate: Effects on Premiums, Coverage, and Uncompensated Care. Washington, DC: Urban Institute.


Dorn, Stan, Ian Hill, and Sara Hogan. 2009. The Secrets of Massachusetts’ Success: Why 97 Percent of State Residents Have Health Coverage. Minneapolis, MN: State Health Access Data Assistance Center.


Eibner, Christine, and Evan Saltzman. 2015. How Does the ACA Individual Mandate Affect Enrollment and Premiums in the Individual Health Insurance Market? Santa Monica, CA: RAND.


Internal Revenue Service. 2016. Statistics of Income—2014, Individual Income Tax Returns. Washington, DC: Internal Revenue Service.


National Taxpayer Advocate. 2016. Objectives Report to Congress: Volume 1, Fiscal Year 2017. Washington, DC: Internal Revenue Service.


Oaxaca, Ronald. 1973. “Male-Female Wage Differentials in Urban Labor Markets.” International Economic Review 14 (3): 693–709.



1 Individuals may be exempt from the individual mandate if (1) the minimum amount they must pay for annual premiums exceeds about 8 percent of their household’s income, (2) they have a gap in coverage for less than three consecutive months, (3) they qualify for a special hardship exemption, or (4) they belong to a group explicitly exempt from the requirement. “The Individual Shared Responsibility Payment - An Overview,” Internal Revenue Service, last reviewed or updated October 3, 2016, accessed September 26, 2016. ^


2 “Individual Shared Responsibility Provision – Reporting and Calculating the Payment,” Internal Revenue Service, last reviewed or updated August 2, 2016, accessed August 29, 2016. ^


3 “Health Coverage Exemptions, Forms and How to Apply,” Centers for Medicare and Medicaid Services, accessed August 29, 2016. ^


4 A Blinder-Oaxaca decomposition of the increase in importance of the penalty between March 2015 and March 2016 indicates that about 40 percent of this change can be attributed to changes in the observed characteristics of nonpoor adults with nongroup coverage during this period (Blinder 1973; Oaxaca 1973). Nonpoor adults with nongroup coverage in March 2016 were less likely to be non-Hispanic white, to be between 50 and 64 years old, and to own a home, than nonpoor adults with nongroup coverage in March 2015. ^


5 The sample sizes for nonpoor adults with Marketplace coverage were 433 in 2015 and 419 in 2016, and the sample sizes for nonpoor adults with non-Marketplace nongroup coverage were 305 in 2015 and 259 in 2016. Sample sizes for other groups of nonpoor adults by coverage type are shown in figure 1. ^


6 Over 8 million tax returns included penalty payments for tax year 2014 (Internal Revenue Service 2016). Of the tax year 2015 returns filed as of April 30, 2016, 5.6 million included a penalty payment (National Taxpayer Advocate 2016). ^


About the Series


This QuickTake is part of a series drawing on the HRMS, a quarterly survey of the nonelderly population that is exploring the value of cutting-edge Internet-based survey methods to monitor the ACA before data from federal government surveys are available. Funding for the core HRMS is provided by the Robert Wood Johnson Foundation and the Urban Institute. The authors are grateful to Sharon K. Long for helpful comments on this QuickTake.


For more information on the HRMS and for other QuickTakes in this series, visit www.urban.org/hrms.


About the Authors


Michael Karpman is a research associate, Fredric Blavin is a senior research associate, and Stephen Zuckerman is a senior fellow and codirector in the Urban Institute’s Health Policy Center.


Urban Institute Robert Wood Johnson Foundation