Affordable Care Act / Healthcare / Regulation

ACA Individual Mandate: Penalty Finalized

On Tuesday, August 27, the IRS issued its final rule regarding the individual mandate to purchase health insurance under the Affordable Care Act (ACA).

The rulemaking formally establishes the IRS requirement for most Americans to be subjected to a financial penalty if an individual does not acquire “minimum essential coverage.” The rule will be published in the Federal Register tomorrow, August 30, and it essentially finalizes the proposed rule published on February 1, 2013. The penalty goes into effect on January 1, 2014.

From a regulatory perspective, the rule adds 7.5 million paperwork hours. While there is no cost listed with these hours, it could be between $234.2 million and $457.5 million when considering the hourly wage of a compliance officer ($31.23/hr) and GDP per hour worked (approximately $61.00).

Comments were acknowledged, but the most significant proposed changes to the regulation were not implemented. Concerns include the potential abuse of the “one-day rule” that allows an individual to satisfy the mandate by obtaining minimum essential coverage for one day and then forgoing it for the rest of the month, as well as the potential consequences of Medicaid applications being denied.

The fine for a non-exempt individual who does not acquire health insurance is initially $95 or 1 percent of household income, increasing to $695 or 2.5 percent of household income in 2016. The penalty for subsequent years will be determined by a cost-of-living formula.

The Obama administration and the Department of Health and Human Services (HHS) have launched a $75 million PR campaign to encourage young people to enroll in the Affordable Care Act’s health insurance exchanges, set to open on October 1. HHS is also promoting a separate $30,000 video submission contest that could award winners $3000 or $2500, for videos that are considered the most persuasive for encouraging enrollment.

The inclusion of young adults is perceived as vital to the success of the ACA, as it is necessary for preventing health insurance premiums from skyrocketing as a result of mandatory coverage for older enrollees and those with preexisting conditions.