Even though penalties for failure to comply with ACA coverage requirements have been in force since January 1, 2014, there is still a good deal of confusion surrounding the requirement that all individuals must have qualifying health insurance coverage throughout the year or pay a fee.

Qualifying health insurance coverage means ACA-compliant coverage provided by an employer, government-sponsored coverage, coverage purchased on Health Insurance Marketplace or Minimum Essential Coverage purchased directly from an insurance company. Qualifying coverage does not include insurance with limited benefits such as dental, vision or specified disease insurance (e.g., cancer treatment expenses only).

Policies that do not comply with ACA rules are gaining popularity because they cost a fraction of the cost of more comprehensive policies. These policies are usually short-term policies and exclude pre-existing conditions, a restriction which is prohibited by ACA. The less expensive, short-term policies were initially marketed to provide gap coverage but many individuals, especially the young and healthy, are buying these policies instead of purchasing employer-provided coverage or coverage on the Health Insurance Marketplace. However, what many people do not understand is that unless they have qualifying coverage under ACA, they will owe a fee, known as the Individual Shared Responsibility Payment, unless an exemption applies.

The Individual Shared Responsibility Payment is either a flat payment or a percentage of an individual’s income, whichever is greater. The fee for not having ACA coverage in 2016 is the greater of:

  1. 2.5% of household income; or

2016 Maximum Amount: Yearly premium for national average price of Bronze plan on the Health Insurance Marketplace.

  1. $695 per adult plus

$347.50 per child under age 18;

2016 Maximum Amount$2,085

Certain exemptions from the Individual Shared Responsibility Payment apply for hardships, some life events and certain short term gaps in coverage (less than 3 consecutive months). Individuals who have no affordable coverage options because the minimum cost for annual premiums exceeds 8% of their household income are also exempt from the Individual Shared Responsibility Payment.

See Part I for a Refresher Course on ACA Penalties on Employers for Not Offering Qualifying Health Insurance.