How U.S. Health Care Reform Works

By: Molly Edmonds

Individual Mandates and Subsidies

In the hours before the vote on health care reform, protesters both for and against health care reform appeared on Capitol Hill.
In the hours before the vote on health care reform, protesters both for and against health care reform appeared on Capitol Hill.
Associated Press/Charles Dharapak

The Patient Protection and Affordable Care Act includes a requirement that all Americans have health insurance. Those who get health insurance from their employer or from the government (in the form of Medicaid and Medicare) are set, but what of those who are unemployed or can't get insurance from their employer? Currently, it's difficult for these people to get coverage because larger groups are better able to negotiate insurance rates than mere individuals.

The insurance marketplace or exchange is designed to group these people together. As we mentioned on the previous page, individual states are charged with setting up their own exchanges, due to open in 2014. The federal government will provide the funds necessary for the exchanges' setup. In the beginning, access to the exchange would be limited to those who have no other form of insurance. These people would be able to choose an insurance plan that fits their needs. All plans in the marketplace will be required to meet certain requirements, a tactic which is designed to ensure that the exchange doesn't become a dumping ground for shoddy plans.


If people don't purchase health insurance, they'll be subject to tax penalties. Beginning in 2014, a person without insurance will pay a penalty of $95 each year or 1 percent of income, whichever is greater. That fee would rise to $695, or 2.5 percent of income by 2016 [source: Miller]. Heads of households will have to pay this fee for every member of the family who isn't covered.

But how will those already struggling find the money to pay? Some citizens will be eligible for subsidies to buy insurance; the plan calls for those with incomes up to 4 times the federal poverty level to receive a subsidy (the current federal poverty level is $10,830 for an individual and $22,050 for a family of four). The amount of subsidy that an individual or family receives will be dependent on their income level; those who make more will receive a smaller subsidy, while those who make less will receive more help. Those who receive subsidies will receive enough so that they don't have to pay more than 9.5 percent of their income on premiums [source: Murray, Montgomery].

Individuals aren't the only ones who might receive subsidies; small businesses are eligible as well. On the next page, we'll examine the employer mandate.