This article was updated on November 2017
The Affordable Care Act requires just about every American citizen to obtain health insurance or face a penalty fee for non-compliance. When discussing the ACA, however, it’s important to keep in mind that not everyone will be required to get insurance. Whether you can’t afford a marketplace plan, can’t get covered through work, belong to an exempted religious organization or meet some other qualifying exemption, you may not have to get coverage and may be able to avoid the shared responsibility payment. How do you know if you qualify under these conditions? Let’s take a look at the available exemptions from the Obamacare mandate.
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The Individual Mandate
First, you should know that the individual mandate has been set up to make sure that the new health care system works efficiently. As long as people participate by buying insurance, more people can get affordable health insurance. The government has instituted a penalty fine for people who refuse to get coverage when they’re eligible. When you file your taxes for 2017, you’ll be assessed a penalty if you didn’t have health insurance for the year. For this tax year, the fee is $695 per adult in your family or 2.5 percent of your household’s taxable income, whichever is greater. The fee increases with inflation each year, so you’ll likely pay more in 2018. Children younger than 18 also get assessed a fee worth half of the adult rate. To avoid this fee, you must prove that you qualify for an exemption as described in the following sections.
Exemptions Based on Income
There are many options for getting affordable coverage on the federal or state marketplaces, but “affordable” is relative. If a marketplace or job-based insurance plan will cost you more than 8.16 percent of your household income, then you’re exempted from the individual mandate when you file your taxes in the spring. In addition, if you don’t normally file taxes due to your income level, then you won’t have to pay the annual penalty fee either.
Health Insurance Exclusions
Obamacare changed how low-income families gain health coverage by expanding opportunities through Medicaid. Under the new guidelines and in states that opted to expand their programs, people earning up to 138 percent of the federal poverty line can apply for coverage. Unfortunately, some people won’t be able to get covered even with subsidies or newly expanded Medicaid guidelines. Not every state expanded Medicaid as provided for under the ACA. To date, just 31 states and the District of Columbia have expanded their programs. For people living in the other 19 states, qualifying for Medicaid might be impossible. As a result, you won’t be charged a penalty fee if you fall into the gap between subsidized insurance and Medicaid eligibility.
Certain religious and Native American groups have been exempted from the individual mandate on principle. Other groups of people may be exempted based on short-term situations or extenuating circumstances. In general, you won’t have to obtain health insurance if:
- You’re a part of a federally recognized Native American tribe.
- You’re eligible for Indian Health Services.
- You participate in a recognized religious sect that is against insurance, Medicare and Social Security.
- You participate in an approved health care sharing ministry.
- You’re currently in jail or prison.
- You’re living abroad as a U.S. citizen.
- You’re classified as “a certain type of non-citizen” or “not lawfully present.”
Under the ACA, lawfully present immigrants can buy health insurance on federal or state marketplaces, but those who aren’t living in the U.S. legally are ineligible for coverage. The “non-citizen” clause relates to U.S. citizens who are still considered legal citizens but who are living in other countries. It also applies to resident aliens. You can read more about these more complex restrictions on the HealthCare.gov website.
Difficult Life Events or Hardships
The government understands that life can become overwhelming or unduly burdensome for many people, often through no fault of their own. In cases like these, there’s a “hardship” exemption available based on different criteria. The following situations will most likely qualify you for a hardship exemption:
- Bankruptcy filing within the last six months
- Recent domestic violence
- Recent death of a close family member
- Shut-off of services from your utility company
- Eviction or foreclosure within the last six months
- Substantial property damage as a result of natural or human-caused disasters
- Cancellation of your current insurance policy with the belief that marketplace plans are too expensive
- Inability to pay medical expenses within the past 24 months, resulting in significant debt
- An unexpected increase in your expenses due to taking care of sick, aging or disabled family members
- Ineligibility for Medicaid based on newly expanded guidelines in states that chose not to expand Medicaid
- An eligibility appeals decision that enables you to purchase lower-cost coverage but which prevented you from enrolling in a plan beforehand
- An unspecified hardship in obtaining a qualified health plan
The last of these conditions is particularly vague, but you must submit an explanation to the marketplace in order to receive approval. In fact, every hardship and other exemption allowed by the ACA must be accompanied by an explanation and applicable documentation. The government is willing to grant people leniency in extenuating or exemptible circumstances, but you’ll need to be straightforward in explaining your reasons for not having health insurance.
Keep in mind that certain hardships and other exemptions have a time limit. For example, members of Native American tribes will be exempted as long as they’re eligible while the Medicaid exemption is only available for one calendar year. You’ll need to stay informed about the status of your exemption in order to avoid penalty fees in the future.
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(This article was updated on October 18, 2016)
Obamacare Individual Mandate: Understanding Exemption Qualifications
One of the most commonly asked questions that we receive on a daily basis is, “Who is exempt from Obamacare?” More often than not, when we explain the benefits of having health insurance to those we work with, people are more willing to buy coverage than seek an exemption from the individual mandate. But if you want to know how exemptions work and how you might qualify, then we can help with that too.
As part of the Affordable Care Act, which is commonly referred to as Obamacare, an individual mandate went into effect requiring most eligible citizens to obtain a qualifying private insurance policy or pay a fine. The fine is known as the Individual Shared Responsibility Payment or individual mandate. Essentially, it means that if you don’t obtain qualifying healthcare, you will face a tax penalty for each month that you don’t have coverage. In 2017, the fee is $695 per adult and $347.50 per child, or 2.5 percent of your household’s taxable income, whichever is greater. The fee increases every year based on inflation.
About the Individual Shared Responsibility Payment – The Individual Mandate
Beginning January 2014, all Americans were required to have health insurance coverage or qualify for an exemption. For individuals who have a qualifying health insurance policy, maintaining that coverage is the only requirement.
The individual shared responsibility payment is for those individuals who can afford insurance but have decided not to purchase health insurance. In 2017, the tax amount was 2.5 percent of your annual taxable income, or $695 per adult and $347.50 per child, whichever was greater. Only the amount above the tax-filing threshold is used to determine the penalty. In 2016, the tax threshold was $10,350 for individuals and $20,700 for couples filing jointly. Penalty fees for 2018 have not been released yet, but the fine is scheduled to increase each year with inflation.
These tax penalties will be assessed when filing your income taxes for that year, which are due by April 17 in 2017. If you are uninsured for more than three months out of the year, one-twelfth of the penalty will be assessed for every month you did not have coverage. For example, if you went a full six months without having health insurance, you would be looking at a penalty of 50 percent.
It is also important to note that if you decide to pay the fee, you are still without health insurance coverage, and you are solely responsible for any expenses that you may accrue if you become sick or hospitalized.
Obamacare Exemption Requirements
Some individuals are exempt from paying the fine, including people experiencing financial hardship and members of identified religious organizations that already receive exemption status from the IRS. You’ll be exempt from having to pay the individual responsibility payment if you meet one of the following requirements:
- You are uninsured for less than three months of a calendar year. Under section 500A of the Internal Revenue Code, the regulation states that during any calendar month, an individual must have the minimum essential coverage under a qualifying plan for at least one day within that month. This is also known as the “Short Coverage Gap.”
- The lowest priced health insurance plan offered to you would exceed 8.16 percent of your household income. If none of the plans on the marketplace are affordable, then you won’t have to pay the fine. In this case, “affordable” means that the plan can’t cost more than 8.16 percent of your household income.
- Your income is substantially low, and you are not required to file a federal tax return. All taxpayers whose household income falls below the applicable filing threshold should automatically qualify for an exemption provided that no other health insurance options are available. Even if you voluntarily file a tax return, you can still claim this exemption.
- You are a member of a federally recognized tribe, or you qualify for health services through an Indian Health Services provider. All federally recognized Native American tribes qualify for an exemption under this regulation. If you are unsure if your tribe is federally recognized, you may visit the National Conference of State Legislatures and search for tribes within your state.
- You are a member of a federally recognized health care sharing ministry. It is important to note that exemption for members of a health care sharing ministry is determined monthly.
- You are a member of a qualifying religious organization with objections to insurance, including Medicare and Social Security. No distinction is made between full membership and partial membership in terms of what is acceptable. Adult members can apply for exemption on behalf of their minor children. However, once a child reaches age 21, he or she must reapply for the exemption.
- You are presently incarcerated, jailed, or detained. The regulation states that all individuals confined for at least one day in prison, jail or a correctional setting shall be exempt from the month that includes the day of confinement.
- You are not lawfully present in the United States. Exemptions are provided for individuals who are not U.S. citizens, nationals of the United States nor lawfully present in the United States. Not being lawfully present means being a nonresident alien or having unlawful immigration status.
Qualification Requirements for Obamacare Hardship Exemptions
Hardship exemptions are available for those who cannot afford to pay for health insurance or for whom health insurance would exceed 8.16 percent of their gross household income. You might qualify for a hardship exemption if you meet one of the following requirements:
- You are homeless, and you do not have a permanent place of residence.
- In the last six months, you were evicted or you are being faced with the possibility of foreclosure.
- A utility company has issued you a shut-off notice.
- You are the victim of domestic violence, or you were involved in a domestic violence incident that financially impacted you.
- Your home was affected by a natural disaster, such as a hurricane, tornado or flood. Other damage to property, such as a fire, would also qualify for an exemption.
- You have filed for bankruptcy within the last six months.
- You have medical expenses that you have accrued within the last 24 months, and you are unable to pay them.
- You have unexpected but necessary expenses due to caring for an aging, disabled or ill family member.
- If you have a dependent who has been denied Medicaid or CHIP, you might be eligible for an exemption if a court order exists requiring health insurance coverage for the child.
- If an appeals decision has rendered you eligible for health care coverage through the health insurance marketplace, you will be exempt during the time you were uninsured.
- You are not eligible for Medicaid within your state because your state has not expanded Medicaid guidelines under the Affordable Care Act.
- Your health insurance was canceled, and you cannot afford any of the insurance plans offered on an exchange site.
- You have experienced other hardships while trying to obtain health insurance coverage.
Catastrophic Health Insurance Plans
Catastrophic health insurance plans are offered to individuals who are under 30 years old or to people who experience a hardship. Catastrophic coverage can be purchased through the marketplace, and premiums for these plans are typically much lower than standard premiums. However, the deductible is usually much higher to compensate, ranging anywhere from $1,000 to $7,000. Plus, you’ll have more out-of-pocket costs if you use a catastrophic plan as regular insurance.
A catastrophic plan will often require you to pay all of your health care expenses up to a designated amount. Once you have reached the designated amount, the plan usually pays the balance of all qualifying medical expenses. The premiums for a catastrophic plan are usually much lower, and it was designed to keep medical expenses down in the event of a medical emergency.
You’re not required to purchase catastrophic insurance if you’re approved for an exemption. The marketplace will automatically offer catastrophic insurance plans to individuals who qualify, but you have the choice to decline. Catastrophic coverage isn’t supposed to be used as major medical coverage – although it does meet the requirements for having minimum essential coverage under the ACA – but it’s better than not having insurance at all. You’ll have to weigh the risks of having no insurance, and facing a potentially devastating financial medical crisis, against the benefits of buying a catastrophic plan.
Are Uninsured Children Subjected to the Individual Shared Responsibility Tax?
Yes, they are. Every child must have minimum essential coverage as defined by the Affordable Care Act or have qualified for an exemption, just like adults. If the parents have failed to provide minimum essential coverage for their child, the parents will owe the individual shared responsibility payment when filing their income taxes for the designated calendar year. Important note: it doesn’t matter if a parent claims the child as a dependent. Parents will still be responsible for the individual shared responsibility payment if a child is defined as a dependent by IRS regulations.
If there is a court order directing a non-custodial parent to pay for health insurance coverage and the non-custodial parent fails to do so, the custodial parent will be required to pay the fine on behalf of the child. Current regulations place the liability for a dependent’s failure to have the minimum essential coverage on the taxpayer who will claim the child as a dependent. Unfortunately, Section 500A does not place the liability on the other parent, even if the non-custodial parent has a legal obligation to do so.
However, the U.S. Department of Health and Human Services has addressed this situation and has authorized the marketplaces to grant hardship exemptions to custodial parents if a child is not eligible for Medicaid or the Children’s Health Insurance Program (CHIP).
There are also special rules for determining whether or not a taxpayer is liable for the shared responsibility payment of an adopted child. If a taxpayer legally adopts a child and claims the child on his or her tax return, the taxpayer is not liable for the fine during the year in which the adoption occurs. Also, if a parent places a child up for adoption during a tax year, the parent may still be able to claim the child without having to pay the individual shared responsibility payment.
Are Uninsured Senior Citizens Subjected to the Individual Shared Responsibility Tax?
Yes, all senior citizens are required to have the minimum essential coverage or qualify for an exemption. Medicare Part A and Medicare Part C qualify as minimum essential coverage under the law, so if you have one of these plans, then you’re compliant with the ACA. Medicare Part B alone does not comply with the Affordable Care Act and must be paired with a private plan or Medicare Part A. Medicare Part C, also known as Medicare Advantage, is a popular option for anyone who is 65 years or older. For more information regarding Medicare enrollment and or general Medicare information, start with one of our dedicated sites on the subject or visit Medicare.gov.
Are U.S. Citizens Residing Outside of the Country Subject to the Individual Mandate?
Yes, all U.S. citizens are subject to the individual shared responsibility tax. However, if you live outside of the United States for at least 330 days within a 12-month period, then you qualify for an exemption under the citizens living abroad category.
How to Apply for an Obamacare Exemption
If you’re seeking an exemption because you can’t afford coverage, you’re a member of a federally recognized tribe, you’re incarcerated, or you participate in a recognized health care sharing ministry, you have two options:
- The exemptions can be claimed when you complete your federal tax return. The deadline for completing your federal tax return is April 17 for 2017 taxes.
- You can apply for an exemption by completing the appropriate form ahead of time. The forms and instructions on how to complete the forms are available on the federal marketplace site.
What Documentation Will I Have to Provide When Submitting My Application?
Documentation can vary depending on your situation. However, some of the most common items requested include the following based on different scenarios:
|Scenario||Possible Documentation Requested|
|You’re homeless.||No documentation|
|You’ve been evicted within the last 6 months.||A copy of the eviction or foreclosure notice|
|You’ve recently received a shut-off notice from your utility company.||A copy of the shut-off notice|
|You’re the victim of domestic abuse or domestic disputes.||No documentation|
|A family member has died recently.||A death certificate or other proof|
|Your home has been substantially damaged by natural disasters, such as flood or fire.||A copy of the police report and insurance claim|
|You’ve filed for bankruptcy within the last 6 months.||A copy of the bankruptcy filing|
|You’ve experienced financial hardship due to caring for a sick or disabled family member.||Documentation of your unexpected expenses and excess costs|
|You’ve accrued medical bills over the last 24 months that you can’t afford to pay.||Copies of unpaid medical bills|
|You care for a child who doesn’t qualify for Medicaid or CHIP, but a court order exists requesting coverage for that child.||A copy of the court order and any denial notices from Medicaid or CHIP|
|You’re not eligible for Medicaid in your state because your state didn’t expand coverage under the new law.||A copy of the denial notice from Medicaid|
|Your health insurance was canceled.||A copy of the cancellation notice|
|You’ve experienced other problems trying to obtain health insurance.||Documentation of your attempts (and failure) to get coverage|
What Happens after Submitting My Application for an Exemption?
After submitting your application to the marketplace for an exemption, it will be reviewed to determine your eligibility. The review process varies depending on the level of exemption and the complexity of your particular situation. If additional information is needed, marketplace officials will contact you by either phone or mail.
Once a decision has been rendered, you’ll be notified by mail of the results. If you are granted an exemption, you’ll be assigned an Exemption Certificate Number (ECN), which you will provide to the IRS when completing your annual taxes.
How do I Appeal if I’m Denied an Exemption?
If you disagree with the decision about your exemption, then you can request an appeal. An appeal request must be made within 90 days of the marketplace’s decision. You may also have someone request the appeal on your behalf, such as a family member or an attorney.
To appeal your application decision, call 1-800-318-2596 (TTY 1-855-889-4325). A written request can also be made by mailing the document to the marketplace appeals division, a full address for which is available on the marketplace website.
How Long Does an Exemption to the Mandate Last?
Hardship exemptions are applicable beginning the month before the hardship starts and extending for one month after the months of hardship. However, people who have hardship exemptions can get longer exemptions if necessary, at the discretion of the marketplace. Health insurance exemptions may be granted up to one year.
Hardship exemptions that were granted based on unaffordability can be for all remaining months within a benefit year. For individuals who were awarded an exemption solely due to their state not expanding its Medicaid coverage, those individuals will be granted exemptions for a full calendar year.
For individuals that were granted exemptions due to their eligibility for Indian Health Services, those individuals will be granted exemptions on a continuing basis. One application may be sufficient without having to complete additional applications in the future, provided that there is no change in tribal membership.
Medicaid and Essential Minimum Coverage
Pregnancy Related Medicaid
Women who are pregnant and receiving Pregnancy Related Medicaid who do not have any other form of minimum essential coverage will be subjected to the individual shared responsibility tax.
Medicaid Premium Assistance Programs
Currently, the regulations do not specifically address if the Medicaid Assistance Programs are minimum coverage. Premium assistance programs include the use of public funds through Medicaid or the Children’s Health Insurance Program (CHIP) to purchase private health insurance.
Medically Needy Program
Medically Needy only provides coverage in the event of an illness or hospitalization. Currently, this coverage does not meet the minimum essential standards, but the marketplace may grant a hardship exemption from the mandate to anyone who needs this form of cost assistance.
What If I Don’t Pay the Individual Shared Responsibility Tax?
If you don’t pay the fine for not having insurance, and you don’t qualify for an exemption, then you may be subject to additional interest by the IRS. By law, the IRS cannot prosecute you, put a lien on your property or assets, or pursue criminal sanctions against you for failing to pay the individual responsibility tax like it can if you don’t pay your regular taxes. However, the IRS does have the authority to deduct the penalty fee from your refund and levy additional interest for as long as you refuse to pay the fine. In other words, a $695 tax could increase to thousands over the course of several years.
The bottom line is that if you’re not going to get health insurance, then you may as well pay the fine and avoid additional penalties imposed by the IRS. Note that the fee will increase each year with inflation. Already, people are paying substantially more in penalty fees than they were when the law took effect in 2013. In 2017, the penalty fee for not having minimum essential coverage was $695 per adult and $347.50 per child, or 2.5 percent on top of your taxable household income, whichever was greater. Fees will increase each year, but rates for 2018 have not been finalized yet. If you need help signing up for coverage or learning more about your options under the ACA, check out our additional articles on Obamacare.