How Does the Tax Cuts and Jobs Act Affect Obamacare?

The only provision of the Affordable Care Act that is repealed is the individual mandate--a crucial piece of the existing health care law.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 (HR 1, “TCJA”) enacted by Congress is one that effectively eliminates the individual health insurance mandate under the Affordable Care Act (popularly called Obamacare). Subject to certain exemptions, the individual mandate requires all Americans to obtain minimally adequate health insurance for themselves and their dependents. Those that fail to do so are required to pay a tax penalty to the IRS. The TCJA eliminates this penalty, so individuals who fail to obtain health insurance will have to pay nothing. This will make obtaining health insurance a purely voluntary decision for individuals, as it was before Obamacare was enacted.

No Impact on 2018

It’s important to understand that the elimination of the Obamacare tax penalty takes effect in 2019. The penalty remains in effect for 2018, and the IRS has said it will enforce the law. Thus, if you fail to obtain health “qualifying coverage” during 2018, the IRS will assess the penalty. Qualifying coverage includes health insurance you obtain through an employer or that you obtain yourself through your state health insurance exchange. For details on the types of qualifying coverage, check out the IRS chart at its Individual Shared Responsibility Provision - Minimum Essential Coverage webpage.

Most people who fail to obtain qualifying coverage during 2018 will have to pay a penalty of $695 per adult and $347.50 per child under 18 (up to a maximum of $2,085 per family). The penalty amount is pro-rated based on the number of months during the year that you're uninsured. You will not be subject to the penalty if you're uninsured for less than three months during 2018.

However, you won’t have to pay a penalty if you’re exempt. There are many ways to be exempt from the penalty, the most common include the following:

  • the most affordable coverage costs more than 8.13% of your household income
  • you are exempt from filing a tax return because your income is too low
  • you are native American or eligible for health services through an Indian health services provider
  • your religion objects to the use of insurance
  • you belong to a health care sharing ministry, or
  • you have been outside the United States for more than one year
  • you qualify for a hardship exemption due homelessness, bankruptcy, eviction, or similar circumstance.

For more details about the exemptions, see Exemptions from the requirement to have health insurance at healthcare.gov.

Obamacare Is Wounded, But Not Dead

It’s important to understand that the TCJA does not repeal Obamacare (although President Trump has said this). The only provision of Obamacare that will be repealed is the individual mandate and that occurs in 2019. All other provisions of Obamacare remain in place. This includes the employer mandate that requires businesses with more than 50 full-time employees provide health coverage for their employees or face stiff penalties. The health care exchanges through which individuals may obtain health care coverage will also remain in place.

However, since obtaining health coverage will be purely voluntary for individuals starting in 2019, it’s expected that millions of people won’t obtain it. These will likely be younger, healthy people who don’t go to the doctor much. Indeed, the Congressional Budget Office estimates that the number of uninsured Americans will increase by 13 million over the next 10 years. In addition, those individuals who do obtain Obamacare coverage will be sicker and therefore more expensive to insure. As a result, the Budget Office estimates that the cost of Obamacare coverage will rise by 10% in most years over the next decade. Individuals who qualify for Obamacare 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.

Why Did Congress Do This?

Republicans have long been opposed to Obamacare’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.

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