What Health Insurance Is Required by Law: Mandates, States, and Penalties

Health insurance required by law breaks down into two separate rules. For individuals, federal law still contains a mandate to carry coverage, but the penalty has been zero since 2019, so there’s no federal consequence for going without. A handful of states enforce their own mandates with real fines. For employers with at least 50 full-time workers, the obligation to offer affordable coverage is very much alive, and the IRS collects penalties when they fall short.

The Federal Mandate Still Exists, But Has No Teeth

The Affordable Care Act originally required most Americans to carry health insurance or pay a tax penalty. The Tax Cuts and Jobs Act zeroed out that penalty starting in 2019.¹ The requirement is still in the tax code, but there’s nothing to enforce. You won’t owe anything on your federal return for going uninsured.

The ACA’s market rules are a separate matter and remain fully in force. Insurers still cannot deny coverage or charge more because of pre-existing conditions, and they must accept all applicants during open enrollment.² Those protections don’t depend on the penalty.

States That Still Fine the Uninsured

Five states and the District of Columbia have their own individual mandates. Residents who go without qualifying coverage face penalties assessed through their state tax returns. The amount is typically calculated as the greater of a flat dollar figure per adult and child or a percentage of household income, and for higher-income households it can run into the thousands. One additional state requires coverage by law but imposes no financial penalty for noncompliance.

Because these mandates run through state taxes, the only reliable way to confirm your obligation is to check your state’s tax agency or health exchange. If you moved during the year, pay particular attention: liability can turn on where you lived during the tax year, not where you file from.

What Counts as Qualifying Coverage

Not every plan satisfies the law. Federal law defines “minimum essential coverage” as a specific list of plan types.³ If you have any of the following, you’re covered:

Employer-sponsored group health coverage, including government employee plans
Marketplace plans purchased through the federal or a state exchange
Medicare, including Part A
Medicaid and CHIP
Military coverage, including TRICARE and VA health care
Grandfathered plans that pre-date the ACA and haven’t made certain changes

Short-term health plans generally do not count. They’re exempt from most ACA requirements and typically lack guaranteed renewability and essential health benefit coverage.⁴ In a state with an individual mandate, relying on a short-term plan can mean paying a penalty at tax time.

Standards a Qualifying Plan Must Meet

Beyond fitting a category, a plan has to deliver certain substantive protections. Plans sold in the individual and small group markets must cover ten categories of essential health benefits: outpatient care, emergency services, hospitalization, maternity and newborn care, mental health and substance use treatment, prescription drugs, rehabilitative services, lab work, preventive and wellness services, and pediatric care including dental and vision.⁵ Large employer plans aren’t technically required to cover every category, but most do because they otherwise struggle to meet minimum value.

Every non-grandfathered plan must cap your yearly out-of-pocket costs. For the 2026 plan year, the Marketplace out-of-pocket maximum is $10,600 for an individual and $21,200 for a family.⁶ Once you hit that limit, the plan covers 100% of allowed in-network costs for the rest of the year. Employer-sponsored plans have a comparable federal cap, though the exact dollar figure may differ slightly.

Most plans must also cover a set list of preventive services at no cost when you use an in-network provider — immunizations, cancer screenings, wellness visits, and other recommended care — even if you haven’t met your deductible.⁷

What Employers Are Required to Offer

Businesses with at least 50 full-time employees, or full-time equivalents, must offer health coverage. The ACA calls these “applicable large employers,” and the IRS enforces the requirement through its employer shared responsibility provisions.⁸ Smaller employers have no obligation to provide insurance, though many do voluntarily.

A full-time employee under the ACA is anyone averaging at least 30 hours per week.⁹ Covered employers must offer coverage to at least 95% of their full-time workforce and extend dependent coverage to children up to age 26. Spouses are not required to be covered.

Affordability and Minimum Value

Simply offering a plan isn’t enough. The coverage must be both affordable and meet a minimum value standard. For 2026, a plan is considered affordable if the employee’s share of the premium for the lowest-cost self-only option does not exceed 9.96% of household income. Because employers rarely know an employee’s actual household income, they typically use one of three IRS safe harbors based on W-2 wages, hourly rate of pay, or the federal poverty line.

The plan must also cover at least 60% of total expected medical costs, a threshold the ACA calls “minimum value.”⁹ A plan that exists on paper but shifts most costs onto employees doesn’t meet the standard.

Employer Penalties

The IRS enforces the employer rules through Section 4980H of the Internal Revenue Code.¹⁰ Penalties only trigger when at least one full-time employee receives a premium tax credit for Marketplace coverage, meaning the employer either didn’t offer coverage or offered something too expensive or too thin.

There are two penalty tracks:

If an employer fails to offer minimum essential coverage to at least 95% of full-time employees, the 2026 penalty under 4980H(a) is approximately $3,340 per full-time employee, minus the first 30. This is assessed across the entire full-time workforce, not just workers who went to the Marketplace.
If coverage is offered but fails the affordability or minimum value test, the 2026 penalty under 4980H(b) is approximately $5,010 per employee who actually obtains subsidized Marketplace coverage.

The statute sets base amounts of $2,000 and $3,000 respectively, adjusted annually for inflation.¹⁰ Most 4980H(b) penalties come from failing the affordability test: the employee’s required contribution inches above the threshold, and the worker goes to the Marketplace instead. With 2026 affordability set at 9.96%, the margin for error is tight.

Exemptions in States With Mandates

Since the federal penalty is zero, federal exemptions are largely academic. In states that enforce their own mandates, exemptions still matter. Specifics vary, but common categories include:

Financial hardship, including insurance costs that exceed a set share of income, bankruptcy, eviction, or homelessness
Religious conscience, such as membership in a recognized religious group that objects to insurance
Participation in a healthcare sharing ministry, which some states treat as equivalent to coverage for mandate purposes
Short coverage gaps during the year
Incarceration, extended residence abroad, or other qualifying life disruptions like domestic violence or a natural disaster

Documentation requirements and the application process differ by state. If you think you qualify, file through your state’s health exchange or tax agency before the relevant tax deadline. Claiming an exemption after a penalty has been assessed is considerably harder.

How Coverage Shows Up on Your Tax Return

Even with the federal penalty at zero, coverage still intersects with your taxes. If you received advance premium tax credits for Marketplace coverage, you must file Form 8962 to reconcile what you received against what your final income actually entitled you to.¹¹ If your income ran higher than estimated, you may owe some of the credit back; if lower, you’ll get a larger credit.

You’ll receive Form 1095-A from the Marketplace if you had exchange coverage, and possibly a 1095-B or 1095-C from your insurer or employer. Wait for your 1095-A before filing. You don’t attach any of the 1095 forms to your return, but hold on to them for your records.¹¹

In a state with its own individual mandate, you’ll also report coverage status on your state return. Check your state tax agency for the forms it requires.

1
Internal Revenue Service. Questions and Answers on the Individual Shared Responsibility Provision
2
eCFR. 45 CFR Part 147 – Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets
3
Office of the Law Revision Counsel. 26 US Code 5000A – Requirement to Maintain Minimum Essential Coverage
4
US Department of Labor. Statement of US Departments of Labor, Health and Human Services, and the Treasury on Short-Term Limited-Duration Insurance
5
Centers for Medicare and Medicaid Services. Information on Essential Health Benefits Benchmark Plans
6
HealthCare.gov. Out-of-Pocket Maximum/Limit
7
HealthCare.gov. Preventive Health Services
8
Internal Revenue Service. Affordable Care Act Tax Provisions for Employers
9
Congressional Research Service. ACA Employer Shared Responsibility Determinations and Potential Penalties
10
Office of the Law Revision Counsel. 26 US Code 4980H – Shared Responsibility for Employers Regarding Health Coverage
11
Internal Revenue Service. Gathering Your Health Coverage Documentation for the Tax Filing Season