Is Health Insurance Mandatory?

Health insurance has not been required at the federal level in the United States since 2019. However, five states — California, Massachusetts, New Jersey, Rhode Island and Vermont — along with the District of Columbia, have their own health insurance mandates. Residents in four of these states and the District of Columbia face penalties for not having health insurance. But Vermont only requires individuals to report their health insurance status.

While opting out of health insurance may reduce immediate expenses, it poses a risk of high costs in case of illness or injury.

You are not legally required to have health insurance at the federal level in the United States as of 2019, although some states might require you to.

Initially, the ACA, commonly known as Obamacare, mandated that most Americans obtain health insurance or pay a tax penalty. This mandate was known as the "individual mandate." The rationale behind this requirement was to ensure a broader, healthier insurance pool, thereby reducing overall health care costs. This was active from 2014 to 2019.

Some states also have their own mandates that are active to this day. Massachusetts is the oldest state to levy a penalty. California, New Jersey, Rhode Island and Washington, D.C. established their own health insurance mandates as well. Vermont also has an individual mandate, but it has no tax penalty if you do not have health insurance. Residents in these states may face state-level penalties for not having health insurance unless they claim an exemption. These penalties are applied during state tax filings, except in Vermont.

Even without a federal mandate, having health insurance provides financial protection against significant medical expenses and facilitates access to health care services, including preventive care.

In the United States, five specific states and one district have instituted health insurance mandates, making it compulsory for residents to have health insurance coverage:

Each of these states and the district requires residents to have health insurance, aligned with the minimum essential coverage standards of the Affordable Care Act (ACA). The specifics, such as exemptions and penalties, vary by jurisdiction. Be aware of your state's requirements, because non-compliance can lead to financial penalties.

In California, health insurance has been mandatory since January 1, 2020, per the state's individual mandate. This law requires all residents to have health insurance meeting minimum essential coverage (MEC). Qualifying plans include employer-sponsored plans, individual market plans, Medicare Part A and Part C and some student health plans. Notably, short-term or limited-benefit plans do not qualify as MEC.

Residents can claim exemptions for reasons like financial hardship or religious beliefs, either through state tax filings or via Covered California, the state's insurance marketplace.

Non-compliance without an exemption leads to penalties enforced by the California Franchise Tax Board.

Source: California Franchise Tax Board, Health Care Mandate

In Massachusetts, the health insurance mandate, in effect since 2006, is one of the oldest in the United States. This law mandates all Massachusetts residents to have health insurance that meets the state's Minimum Creditable Coverage (MCC) standards. The MCC criteria ensure that health plans cover a broad range of services, including preventive care and emergency services.

Qualifying plans under this mandate include employer-sponsored plans, individual health plans and government programs like Medicare and Medicaid (MassHealth in Massachusetts). Like California, short-term and limited-benefit plans do not meet the MCC standards in Massachusetts.

A distinctive feature of Massachusetts' mandate is the affordability schedule, which details the maximum monthly premiums considered affordable for individuals, married couples and families across different income brackets.

Source: Mass.gov, TIR 22-17: Individual Mandate Penalties for Tax Year 2023

Massachusetts residents can apply for exemptions if they cannot afford health insurance, based on income levels and affordability standards set by the state. The only other exemption is a short gap in coverage and if faced with some hardships like you were homeless or received an eviction notice.

Non-compliance with the Massachusetts mandate, without a valid exemption, results in a penalty. The penalty varies based on income and affordable insurance premiums, and it is calculated as part of the state tax filing process.

The Massachusetts Health Connector is the state's health insurance marketplace and plays a key role in facilitating compliance with the mandate.

In New Jersey, the individual health insurance mandate, effective from January 1, 2019, requires residents to have health insurance that meets minimum essential coverage (MEC) standards.

If you do not have health insurance, you are required to pay a penalty when you file your tax return unless you have a coverage exemption. Coverage exemptions are available for certain circumstances, including financial hardship and religious objections.

The penalty system, known as the Shared Responsibility Payment (SRP), is based on household income and family size. The criteria are outlined in the New Jersey Health Insurance Market Protection Act of 2018.

The cost is limited to the average annual premium of Bronze health plans across New Jersey. This means that the penalty you may incur is limited to this specific benchmark, ensuring that it does not exceed the average cost of a certain level of health coverage.

Note: Household income includes the income of all members in a household, including dependents.

Source: nj.gov, NJ Shared Responsibility Requirement

Like California and New Jersey, in Rhode Island, the health reform mandate, effective from January 1, 2020, requires residents to have health insurance that meets minimum essential coverage (MEC) standards. Failure to have essential coverage leads to penalties.

However, exemptions are available for specific circumstances, including hardships, membership in certain religious sects and unaffordable coverage based on projected income. Members of health care sharing ministries and part-year Rhode Island residents may also be exempt.

Source: State of Rhode Island Division of Taxation, 2022 Shared Responsibility Worksheet

Vermont requires all residents over 18 to report their health insurance status on state taxes, but unlike some other states, there is no penalty for being uninsured. The focus is on reporting rather than imposing penalties.

While Vermont recommends that all residents have health insurance and provides a health insurance marketplace, the state's policy doesn't differ significantly from federal legislation. The primary requirement is the yearly reporting of health insurance coverage on state taxes.

Under the Washington, D.C. Individual Taxpayer Health Insurance Responsibility Requirement, all residents of the district are obligated to maintain health insurance coverage. Exemptions from the mandate are available and can be claimed on your tax return or through DC Health Link.

MoneyGeek answers key questions on mandatory health insurance in states, simplifying state requirements for your convenience.