Understanding the individual mandate

Preparing you for 2014 and beyond

The Affordable Care Act (ACA) includes an individual mandate requiring most Americans to enroll in a qualified health plan or pay a tax penalty. To help some individuals and families purchase coverage, the law also establishes financial assistance and health insurance exchanges like Covered California.

In California, individuals and families may be eligible for financial assistance through Covered California if they:

  • are U.S. citizens or legal residents
  • have an income that falls between 133 and 400 percent of the federal poverty level (FPL) (for a premium tax credit) and 100 and 250 percent of the FPL (for a cost-sharing reduction)
  • arent eligible for Medi-Cal
  • dont have access to an employer-sponsored health plan that meets ACA standards

Some employees with access to an employer-sponsored plan may be eligible for financial assistance if the employers plan doesnt cover at least 60 percent of expected costs for a standard population. They also may be eligible if the employees share of the premium contribution for coverage (excluding the cost for their spouse or dependents) exceeds 9.5 percent of the employee's income.

In California, most individuals and families with incomes at or below 138 percent of the FPL are eligible for fully paid coverage through Medi-Cal, and therefore are not eligible for financial assistance through Covered California.

How much is the penalty for not having coverage?

Most individuals or families without coverage will pay either a flat fee or a percentage of their taxable income, whichever is greater. This penalty will increase annually from 2014 to 2016.

Year Flat fee per person
Maximum flat fee for families Percentage of taxable income
2014 $95 / $47.50 $285 1%
2015 $325 / $167.50 $975 2%
2016 $695 / $347.50 $2,085 2.5%
Beyond 2016 Increases by cost of living Increases by cost of living 2.5%


Some individuals may qualify for an exemption from the penalty, including those who are uninsured for less than three months and those who qualify for an exemption from the exchange for financial reasons.

Also, individuals and their dependents won’t be liable for the penalty through the month in 2014 when their current employer-sponsored plan year ends, and employers won’t have to offer them a special open enrollment period.

Employees and dependents who don’t enroll in the employer plan in 2014 and don’t obtain individual coverage could be liable for the penalty beginning on the first day of the month in 2014 after the current employer-sponsored plan year ends, as well as any subsequent years beginning in 2015 in which they don’t have coverage.

Sample scenario

Phil and Lupe are married and have three children. Their household income is $67,525 a year. Neither Phil nor Lupe has an employer-sponsored health plan available to them.

If they go without coverage in 2014, the annual flat fee would be $95 each for Phil and Lupe, plus $47.50 for each of their three children, coming to a total of $332.50. This exceeds the maximum flat fee for families, so their penalty would be reduced to $285. However, 1 percent of their household income is $675.25. Since that’s greater than their flat fee of $285, they would pay a penalty of $675.25.

If their income and family size remain the same, here’s what their penalty would be from 2014 to 2016:

Year Calculated flat fee Capped flat fee Percent of income Penalty (greater of the two)
2014 $332.50 $285 $675.25 (1%) $675.25
2015 $1,152.50 $975 $1,350.50 (2%) $1,350.50
2016 $2,432.50 $2,085 $1,688.13 (2.5%) $2,085


Who’s eligible for a premium tax credit?

Individuals or families whose incomes fall between 133 and 400 percent of the FPL and who aren’t eligible for Medi-Cal are eligible for lower premiums on coverage purchased through Covered California. To find the percentage of the FPL for various income levels in this range, see the following chart. You can find the FPL for larger families at the U.S. Department of Health and Human Services website.

Single $15,282 $17,235 $22,980 $28,725 $34,470 $45,960
Couple $20,628 $23,265 $31,020 $38,775 $46,530 $62,040
Family of 3 $25,975 $29,295 $39,060 $48,825 $58,590 $78,120
Family of 4 $31,322 $35,325 $47,100 $58,875 $70,650 $94,200


Individuals and families who have access to an employer-sponsored health plan aren’t eligible for lower premiums as long as the plan meets certain standards for coverage and affordability. However, employees may be eligible for lower premiums if their employer’s plan doesn’t cover at least 60 percent of expected costs for a standard population, or if the employee’s share of the premium contribution for employee-only coverage exceeds 9.5 percent of the employee’s income.

How do you calculate your tax credit?

To understand how the premium tax credit is calculated, it’s important to know about the levels of coverage offered. Covered California will offer four main levels of coverage — bronze, silver, gold, and platinum — known as metal tiers. The tax credit is calculated using a benchmark plan, which is the second-lowest-cost silver tier plan available. The credit is designed to ensure that the cost of premiums for the benchmark plan won’t exceed a certain portion of household income.

Income Maximum contribution to premiums
133 to 150% of FPL 3 to 4% of income
150 to 200% of FPL 4 to 6.3% of income
200 to 250% of FPL 6.3 to 8.05% of income
250 to 300% of FPL 8.05 to 9.5% of income
300 to 400% of FPL 9.5% of income


Individuals and families receive the same tax credit regardless of the tier and plan they select. This means those choosing a higher-cost gold or platinum plan will need to contribute more of their premium than they would with the benchmark plan, and those selecting a lower-cost bronze plan will contribute less of their premium than they would with the benchmark plan. This premium tax credit may not cover all services included in a metal plan, so individuals and families may still owe a small premium.

Find out what your employees’ tax credit will be by using Covered California’s financial assistance calculator.

Example of how to calculate potential tax credit

Susan and Jonathan Miller have two children and an annual household income of $70,650. The premium for the benchmark silver plan in their state is $13,500 a year ($1,125 a month).

  • Step 1: With an income of $70,650, the Millers are at 300 percent of the FPL.
  • Step 2: At this level, their contribution would be capped at 9.5 percent of their income, or $6,711.75 ($559.31 per month).
  • Step 3: The Millers are eligible for a premium tax credit of $6,788.25 ($13,500 for the benchmark plan minus the Millers’ maximum contribution of $6,711.75). It remains the same at $6,788.25 ($565.69 per month), even if they select a plan with premiums higher or lower than the benchmark silver plan.

What’s the cost-sharing reduction?

In addition to premium tax credits, individuals or families with incomes between 100 and 250 percent of the FPL (and ineligible for Medi-Cal) who purchase silver plans through Covered California can get reduced cost-sharing to help with the costs of accessing care. Annual out-of-pocket (OOP) limits protect plan subscribers by putting a ceiling on total annual costs for essential health benefits — excluding premiums — and cost-sharing reductions lower these OOP limits for silver plans purchased by qualifying individuals and families. Cost-sharing reductions won’t affect plan premiums.

Each year, the U.S. Department of Health and Human Services (HHS) will define a maximum OOP limit dollar value for all plans, and a cost-sharing reduction will lower that maximum for eligible individuals and families on silver plans.1 Cost-sharing reductions will also increase the actuarial values of those silver plans, and some plans may have to change other cost-sharing provisions to meet these new elevated levels. HHS reserves the right to adjust the required OOP reduction depending on several factors.

Income Silver plan with cost-sharing reduction Required actuarial value for silver plan after reduction
100 to 150% FPL 1/3 maximum OOP limit 94%
150 to 200% FPL 1/3 maximum OOP limit 87%
200 to 250% FPL 1/2 maximum OOP limit 73%


Sample scenario

Danielle makes $19,547.50 a year — 175 percent of the FPL — and she chooses to purchase an individual silver plan through Covered California using a cost-sharing reduction. The maximum OOP limit is $5,000 for that year, so HHS reduces Danielle’s OOP limit to $1,650 — one-third of the maximum plan OOP limit.2 This means her contribution to covered medical costs would be capped at $1,650 that year, regardless of how much she incurs in deductibles, copays, and coinsurance.

After the reduction in her OOP, Danielle’s silver plan would have an 82 percent actuarial value. Because of this, her plan provider has a silver plan variation — only available to customers in Danielle’s income range — with a lower deductible to give the plan variation the required 87 percent actuarial value.3

Types of plans available in Covered California

Covered California will offer bronze, silver, gold, and platinum plans, categorized based on their level of cost sharing. Plans in each metal tier will offer similar coverage for essential health benefits — making it easier to compare plans. Some individuals under 30 who aren’t subject to the individual mandate (and those who are older and who have received a hardship or affordability exemption) will also have access to a high-deductible, low-cost catastrophic plan.

The metal tiers are organized according to their actuarial values the percent of covered essential health benefits the health plan expects to pay for an average person:4

  • platinum — 90% actuarial value
  • gold — 80% actuarial value
  • silver — 70% actuarial value
  • bronze — 60% actuarial value

These four categories offer different levels of copayments, coinsurance, and deductibles for essential health benefits. For example, bronze plans have lower premiums with higher out-of-pocket costs, while other metal tier plans have higher premiums and lower out-of-pocket costs.

For more information

This information is designed to provide a general overview of portions of the Affordable Care Act and should not be relied upon as legal or tax advice. Federal and state laws and regulations are subject to change. Seek professional advice regarding how the new requirements will affect your particular circumstances from an independent tax advisor or legal counsel. Information may have changed since publication.

1 In 2014, the maximum OOP limit will be $6,350 for individual plans and $12,700 for family plans. Beginning in 2015, the individual plan maximum OOP limit will match any increases the secretary of HHS establishes, and the family plan maximum OOP limit will continue to be twice that of the individual plan.

2 Beginning in 2015, the maximum OOP limit after cost-sharing reductions will be rounded down to the closest multiple of $50.

3 The ACA allows a difference of +/- two points for actuarial value percentage.

4 See note 3.

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