Can You Go Without Health Insurance and Not Owe a Penalty?

Wondering whether you'll owe a tax penalty for being uninsured? In most states, the answer is no. But if you're in California, DC, Massachusetts, New Jersey, or Rhode Island, there is a penalty for being uninsured, which is assessed when you file your state tax return. Here's an overview of how the individual mandate penalty has evolved over time:

ACA Goal: Insure Most Americans and Keep Them Insured

The overarching goal of the Affordable Care Act (ACA) was to extend health insurance coverage to as many Americans as possible. In that regard, it's had significant success. From 2010 through 2016, the number of people with health insurance in the U.S. increased by roughly 20 million. And although the uninsured rate has been increasing since 2017, it has been below 10% since 2015.

But while access to health insurance is important, it's also important that people maintain their coverage going forward. Keeping as many people as possible in the risk pool—especially when they're healthy and not in need of immediate care—keeps premiums affordable. And while health insurance coverage is certainly not cheap, it would be far more expensive if people could just wait to purchase coverage until they were in need of medical care.

Federal Penalty Applied From 2014 Through 2018

When it comes to encouraging people to have health insurance, the ACA has plenty of carrots, including guaranteed-issue coverage and subsidies to make coverage and care more affordable (ie, premium subsidies and cost-sharing subsidies). But for several years there was also a stick, in the form of a financial penalty for people who failed to maintain health insurance coverage throughout the year.

The penalty was implemented in 2014, and became progressively steeper through 2016. The average penalty for people who were uninsured in 2015 was $470 —up from $210 the year before. And according to data from the IRS, the average penalty was $708 for tax filers who owed the penalty for being uninsured in 2016.

For 2017 and 2018, the penalty remained at the same level it was at in 2016. But the penalty was eliminated after the end of 2018, as a result of the Tax Cuts and Jobs Act (H.R.1) that was enacted in late 2017 (for 2018, the penalty still applied, just as it had since 2014, so people who were uninsured in 2018 had to pay the penalty when they filed their tax returns in early 2019).

The ACA's individual mandate—the requirement that people maintain minimum essential coverage—is still in effect. But there is no longer a federal penalty for non-compliance. So people who are currently uninsured are not subject to a federal penalty. They're still stuck without health insurance if they end up needing medical care, and unless they experience a qualifying event (and a change in health status is not a qualifying event), they won't have an opportunity to enroll in coverage until the annual open enrollment period.

[Open enrollment windows apply to employer-sponsored plans as well as self-purchased plans, although employer-sponsored plans can set their own specific windows for enrollment and these will vary from one employer to another. But there is no way to enroll in comprehensive major medical health coverage outside of open enrollment unless you have a qualifying event.]

Although the IRS no longer imposes a penalty on people who go without health insurance, there are a few states that have implemented their own individual mandates, with penalties for residents.

States Where There Is Still a Penalty

In 2020, there's a penalty for being uninsured if you're in California, DC, Massachusetts, New Jersey, or Rhode Island. The penalty was assessed on 2019 (and future) tax returns in DC, Massachusetts, and New Jersey; it will start to be assessed on 2020 tax returns in California and Rhode Island. Massachusetts has had an individual mandate penalty since 2006, although they didn't double penalize people who were uninsured between 2014 and 2018 and subject to the federal penalty. But they started assessing penalties again as of 2019, since there is no longer a federal penalty.

Vermont implemented an individual mandate as of 2020, requiring state residents to maintain coverage. But lawmakers designed the program so that there is currently no penalty for non-compliance with the mandate. Instead, the information people report on their state tax return (indicating whether or not they had coverage during the year) will be used for the state to conduct targeted outreach to help people obtain coverage and understand what financial assistance might be available to offset the cost.

Individual Mandate Exemptions: Still Important if You Want a Catastrophic Plan

Although there is no longer a federal penalty for being uninsured, the process of obtaining a hardship exemption from the individual mandate is still important for some enrollees. If you're 30 or older and want to buy a catastrophic health plan, you need a hardship exemption.

You can obtain the hardship exemption from the health insurance exchange (instructions and information are available here), and you'll need the exemption certificate in order to enroll in a catastrophic health plan. These plans are less expensive than bronze plans, although you can't use premium subsidies to offset their cost, so they're really only a good choice for people who don't qualify for premium subsidies.