Only 13% of Uninsured Expected to Pay Individual Mandate Penalty

The individual mandate penalty is arguably the most controversial piece of the Affordable Care Act. It was the centerpiece of the legal challenge to the ACA, a challenge that made it to the Supreme Court, and it has been the subject of frequent debate in recent years. Yet, CBO's latest analysis of the mandate shows that the number of Americans actually expected to pay the penalty is small, even compared to the number of people remaining uninsured after the ACA's implementation.

CBO estimates that only 4 million people will pay the penalty in 2016, less than one-seventh of the 30 million people projected to be uninsured at that time, raising $4 billion in revenue. The reason for the discrepency stems from the myriad of exemptions that were either written into the law or created administratively. Some of these exemptions include people who do not have to file a tax return, people who would otherwise be eligible for Medicaid but live in a state that didn't expand it, and people whose health insurance premiums would exceed a certain percentage of their income. CBO estimates that 23 million of the 30 million uninsured would qualify for one or more of these exemptions, and 3 million of the remaining would get a hardship exemption. 

Over time, the estimate of the scope and revenue raised from the individual mandate has changed some, although it is similar now to when the ACA was enacted. Back then, CBO anticipated that in 2016 the same number of people would pay the penalty and the same amount of revenue would be raised, although its estimate for revenue raised from the penalty cumulatively through 2019 has since increased by about $2 billion.

However, both of these estimates are noticeably lower than CBO's estimate from September 2012, a few months after the Supreme Court decision to effectively make the Medicaid expansion optional for states. Then, it anticipated 6 million people paying the penalty with revenue of $7 billion in 2016. CBO intimated that most of the increase in estimated penalties between April 2010 and September 2012 was due to changes in its baseline projections, which had reduced the number of people expected to gain coverage and thus increased the amount of people paying the penalty. The Supreme Court decision accounted for only a small portion of the change since most of those affected were exempted from the mandate.

On the flip side, the decline in projected penalty payers since September 2012 was a result of increased exemptions from administrative actions and downward revisions to economic projections, leaving more people subject to the income-related exemptions.

CBO also estimates the distribution of who pays the penalty by income level, something that has also changed over time. While the 2010 and 2014 estimates are the same in the aggregate, their distribution is somewhat different. People with income below the poverty line and above 400 percent of the poverty line are expected to make up a smaller share of the penalty payers, and people in between make up a greater share.