How Does the Tax Cuts and Jobs Act Affect the Affordable Care Act?

The only provision of the Affordable Care Act that is repealed is the individual mandate--a crucial piece of the existing health care law.

Among the many provisions in the Tax Cuts and Jobs Act (TCJA), the massive tax reform law enacted by Congress in 2017, is one that effectively eliminated the individual health insurance mandate under the Affordable Care Act (ACA; popularly called Obamacare). Subject to certain exemptions, the individual mandate required all Americans to obtain minimally adequate health insurance for themselves and their dependents. Those that failed to do so were required to pay a tax penalty to the IRS. The TCJA eliminated this penalty. As a result, individuals in most states who fail to obtain health insurance will have to pay nothing. This makes obtaining health insurance a purely voluntary decision for most individuals, as it was before the ACA was enacted.

Obamacare Is Wounded, But Not Dead

It’s important to understand that the TCJA did not repeal the entire ACA. The only ACA provision that was eliminated was the individual mandate. Technically, the TCJA did not repeal the individual mandate; rather, it "zeroed out" both the dollar amount and percentage of income penalties imposed by the mandate. Thus, no penalty need be paid for failure to obtain health insurance. This change became effective starting in 2019.

All other provisions of the ACA remain in place. This includes the employer mandate that requires businesses with more than 50 full-time employees to provide health coverage for their employees or face stiff penalties. The health care exchanges through which individuals may obtain health care coverage also remain in place.

Since obtaining health coverage is now purely voluntary in most states, some people may elect to go without coverage. About 300,000 fewer people people obtained health insurance through the ACA exchanges in 2019 compared with 2018. This was a smaller reduction than many experts predicted. It’s likely that one important reason ACA enrollments did not decline by much is that the vast majority of enrollees obtain tax credits through the program to help pay for their coverage.

However, those who refrain from obtaining health coverage will likely be younger, healthy people who don’t go to the doctor much. In addition, those individuals who do obtain ACA coverage will be sicker and therefore more expensive to insure. As a result, the Budget Office estimates that the cost of ACA coverage will rise by 10% in most years over the next decade. Individuals who qualify for ACA tax credits may be largely insulated from these cost increases. But those who don’t qualify for the credits because their income is too high may get priced out of the market.

Watch Out for State Mandates

Some states are enacting their own state-wide health care individual mandates. Massachusetts has had it own health coverage mandate since 2006 and it remains in effect today. New Jersey passed a state-wide mandate that took effect in 2019. Vermont passed a health coverage mandate that will take effect in 2020. Other states are considering implementing their own mandates—these likely won’t take effect until 2020 or later.

Why Did Congress Do This?

Republicans have long been opposed to the ACA’s individual and employer mandates. However, perhaps the most important reason the mandate was eliminated in the TCJA is because it will save money. According to the Congressional Budget Office (CBO), eliminating the individual mandate will save the federal government approximately $338 billion over the next 10 years. This is because fewer people will obtain government subsidized health coverage. This savings enabled Congress to implement many of the tax cuts contained in the TCJA.

No Impact on 2018

The elimination of the ACA tax penalty took effect in 2019. The penalty remained in effect for 2018. Thus, if you failed to obtain health “qualifying coverage” during 2018, you were subject to the penalty. Qualifying coverage includes health insurance you obtained through an employer or that you obtained yourself through your state health insurance exchange. Most people who failed to obtain qualifying coverage during 2018 had to pay a penalty of $695 per adult and $347.50 per child under 18 (up to a maximum of $2,085 per family). However, you were not subject to the penalty if you were uninsured for less than three months during 2018 or were otherwise exempt from the individual mandate. For more details about the exemptions, see Exemptions from the requirement to have health insurance at healthcare.gov.

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