Is Health Insurance Required in Your State?

Federal law requires all taxpayers to have health insurance but there is no penalty tax at the federal level if you do not have it. However, a tax penalty can apply at the state level if you do not have health insurance and live in California, Massachusetts, New Jersey, Rhode Island, Vermont or the District of Columbia.

Learn more about the consequences of going without health insurance, how you can get exempt from paying penalties and solutions for obtaining the best health coverage for your needs.

Key Takeaways Residents in California, Massachusetts, New Jersey, Rhode Island and the District of Columbia pay a tax penalty if they do not maintain health insurance. Vermont requires health insurance but does not enforce a tax penalty for residents who do not comply. Individuals may be exempt from the state penalty for religious or hardship reasons or incarceration. The tax penalty for not having health insurance was removed at the federal level.

Which States Require Health Insurance?

California, Massachusetts, New Jersey, Rhode Island, Vermont and the District of Columbia require residents to have health insurance.

California Individual Mandate

Effective date: January 1, 2020

Requirements: ACA-compliant health insurance

Penalty: Tax penalty for those who can afford insurance but refuse to purchase a plan

The California tax penalty for health insurance non-compliance is based on the ACA (Affordable Care Act) penalty that ended in 2018. The penalty amount starts at $850 per adult and $425 per dependent child under 18 in the household when you file your 2022 state income tax return in 2023. The penalty can be avoided if there is a qualifying exemption.

Eligible exemptions include:

• Religious exemption
• Hardship exemption (e.g., homelessness, eviction, natural disaster, domestic violence or bankruptcy)
• Affordability exemption
• Coverage gap was short
• You are part of a federally recognized Native American nation
• Incarceration

Massachusetts Individual Mandate

Effective date: January 1, 2006

Requirements:  ACA-compliant health insurance

Penalty: Tax penalty for those who can afford insurance but refuse to purchase a plan

The Massachusetts individual mandate was enacted in 2006. Fortunately, the removal of the federal penalty will no longer subject Massachusetts residents to a double fine. The state penalty fine is based on how much the individual’s income exceeds the federal poverty level (FPL):

Individual Income Category	150.1-200% FPL	200.1-250% FPL	250.1-300% FPL	Above 300% FPL
Penalty	$23/month $276/year	$45/month $540/year	$67/month $804/year	$159/month $1,908/year

The Massachusetts penalty applies to only adults. The penalties imposed through the individual’s personal income tax return will not exceed 50% of the minimum monthly insurance premium an individual would pay through the Health Connector.

Some may qualify for an exemption from the penalty for religious reasons or due to hardship, such as homelessness, eviction, natural disaster, domestic violence or bankruptcy.

New Jersey Individual Mandate

Effective date: January 1, 2019

Requirements:  ACA-compliant health insurance

Penalty: Tax penalty for those who can afford insurance but refuse to purchase a plan

Passed in 2018, Assembly Bill 3380 enforces a penalty on New Jersey residents refusing to purchase health insurance despite having the financial resources to do so. Also called the Shared Responsibility Payment (SRP), the penalty is based on your income and family size and is withheld on your tax return. The maximum penalty is equivalent to the state’s average cost for a bronze plan:

Filing Status	Penalty
Individual taxpayer	Minimum: $695 Maximum: $3,661
Family with two adults and three dependents and household income of $200,000 or below	Minimum: $2,351 Maximum: $4,869
Family with two adults and three dependents and household income of $200,001 to $400,000	Minimum: $2,351 Maximum: $10,279
Family with two adults and three dependents and household income of $400,001 and above	Minimum: $2,351 Maximum: $19,793

New Jersey recognizes eligible exemptions, including:

• Religious exemption
• Hardship exemption such as homelessness, eviction, natural disaster, domestic violence or bankruptcy
• Affordability exemption
• Coverage gap was short
• Membership in federally recognized Native American nation
• Incarceration

Rhode Island Individual Mandate

Effective date: January 1, 2020

Requirements:  ACA-compliant health insurance

Penalty: Tax penalty for those who can afford insurance but refuse to purchase a plan

Rhode Island's individual mandate penalty took effect in 2020. Three methods are used to calculate the penalty amount: flat dollar amount method; percentage of income method and; bronze plan method. Rhode Islanders that do not maintain healthcare coverage can calculate their penalty, using the “Shared Responsibility Sheet” on the Rhode Island website. The maximum penalty is generally $695 per person.

Exemptions in Rhode Island may include:

• Religious exemption
• Hardship exemption such as homelessness, eviction, natural disaster, domestic violence or bankruptcy
• Affordability exemption
• You are part of a federally recognized Native American nation
• Incarceration

Vermont Individual Mandate

Effective date: January 1, 2020

Requirements: Residents must report whether or not they have ACA-compliant insurance during the year on their tax forms.

Penalty: NO penalty for non-compliance

Vermont residents must report if they have health insurance when filing their state taxes, including if they have Medicare or Medicaid.

Washington, D.C. Individual Mandate

Effective date: January 1, 2019

Requirements:  ACA-compliant health insurance

Penalty: Tax penalty for those who can afford insurance but refuse to purchase a plan

Residents in the District of Columbia will be fined for not having health insurance. The penalty will be one of the following, whichever is greater:

1. $700 for each adult and $350 for each child, up to $2,100 per family OR
2. 2.5% of family income that is over the federal tax filing threshold

Exemptions from the non-compliance penalty include hardship (e.g., homelessness, eviction, natural disaster, domestic violence or bankruptcy) and affordability.

What Happens if You Don’t Apply for Health Insurance?

The fallout from not having health insurance can be overwhelming and can include state tax penalties, higher out-of-pocket costs and postponing essential healthcare.

• Higher charges for the same services: Without health insurance, you’re responsible for the full medical bill. If you maintain coverage, your carrier would cover a portion of the cost after your deductible and copay or coinsurance.
• Medical debt: Consumers may need to resort to a third-party loan or in-house financing to afford their medical care and prescription drugs. The accrued interest adds to their total expense. Currently, around 23 million people have medical debt with 3 million owing over $10,000 in medical bills.
• State tax penalties: Depending on your state and unless you qualify for an exemption, you may pay a tax penalty for not maintaining health insurance coverage throughout the year.
• Postponing or neglecting healthcare: The high out-of-pocket cost of medical treatment without health insurance may push consumers to delay seeing a doctor. This could cause certain diseases to go undiagnosed and potentially worsen over time.

How Do You Avoid the Individual Mandate Tax?

Maintaining health coverage throughout the year or looking into healthcare subsidies or Medicaid if it’s too expensive can help you avoid the individual mandate tax.

Get health insurance when it’s available. Open enrollment occurs once a year, starting  November 1 and ending January 15 in most states. If you forget to buy insurance during open enrollment, you can still purchase it during a special enrollment period if you experience a qualifying life event (e.g., getting married, moving addresses, having a child).

Look into subsidies. If healthcare insurance is still too expensive, see if you qualify for subsidies that will lower your premium payment. For example, the premium tax credit reduces monthly payments for plans purchased through the Healthcare Marketplace. To qualify, an enrollee must:

• Have a household income at least equal to the Federal Poverty Level (FPL)
• Not having health coverage through an employer
• Not be eligible for coverage through Medicare, Medicaid or the Children’s Health Insurance Program (CHIP)
• Have U.S. citizenship or proof of legal residency
• Must file taxes jointly, if married

Get Medicaid. Low-income families, qualified pregnant women and children and individuals receiving Supplemental Security Income (SSI) are groups that every state is mandated to allow access to Medicaid coverage. Other eligibility requirements will vary by state. The cost of coverage will depend on your income and where you live. However, what you pay for Medicaid will be substantially lower than a healthcare plan from the marketplace.

What Should You Do if You Don’t Have Insurance?

You have several options if you don’t have health insurance, such as buying insurance through the ACA marketplace, joining your employer’s group plan or enrolling in your state’s healthcare subsidy program.

Get Health Insurance From the Marketplace

The best thing you can do is to purchase health insurance when it’s available through the marketplace. Open enrollment is November 1 through January 15 for most states. Go to your state's health marketplace page and find coverage that will meet your medical needs and won’t break the bank.

Use Employer-Sponsored Health Insurance

Many employers will offer health insurance coverage to their employees. Take advantage of this benefit when it's available and find healthcare that fits your situation.

Buy Health Insurance Directly From the Insurance Company

Many of the major insurance companies offer healthcare coverage any time of year, regardless of when open enrollment occurs. If you missed the enrollment deadline, find a healthcare provider that sells individual plans directly to consumers.

Enroll in Medicaid if You Qualify

Medicaid gives health insurance coverage to low-income families, qualified pregnant women and children and individuals receiving Supplemental Security Income (SSI). See if you qualify and get the healthcare you need.

How Do You Choose the Best Health Insurance Plan?

The best health insurance plan depends on your needs and financial situation. Healthcare plans are traditionally broken up into tiers; bronze, silver, gold and platinum.

Bronze will have the lowest monthly premiums and highest deductible, while platinum will have the highest monthly premiums and lowest deductible. The tier does not determine the quality of care.

If you foresee yourself using your coverage regularly, get a plan with a low deductible and higher premium payments. If you don’t anticipate having a lot of health-related issues in the coming year, get a plan with low premium payments and a higher deductible.

Why Is Health Insurance Important?

Health insurance helps everyday consumers access medical care at a price they can afford. Both the consumer and the insurance company split the bill — the consumer pays a monthly premium and out-of-pocket costs (e.g., deductibles, copays) and the carrier covers the remaining invoice balance. With medical care made more affordable, consumers can access the treatment they need, including:

• Emergency services
• Hospitalization
• Pregnancy, maternity, and newborn care
• Counseling and psychotherapy
• Prescription drugs
• Preventive and wellness services and chronic disease management
• Oral and vision care