(This article was updated on July 15 2015)
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.
The Individual Mandate
First, you should know that the individual mandate has been set up to make sure that the new law 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 2015, you’ll be assessed $325 per adult in your family or 2 percent of your household’s taxable income, whichever is greater. The fee increases to the greater of $695 per adult or 2.5 percent of taxable income the following year. 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 8.05 percent of your household income, then you’re exempted from the individual mandate when you file your taxes in 2016. 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.
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 29 states and the District of Columbia have expanded their programs. For people living in the other 21 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 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 complicated 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.
Determine Without Risk Your Estimated Health Insurance Costs With & Without A Subsidy
(This article was updated on October 10, 2014)
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?” Often after explaining the real world costs and after providing individuals with factual information, more than 90% of the time, most Americans that we speak with are actually less interested in obtaining an exemption to Obamacare and more interested in actually obtaining healthcare. That said, if you do in fact wish to be exempt we can help you understand the exact qualification requirements.
As part of the Affordable Care Act, which is commonly referred to as Obamacare, an individual mandate went into effect requiring every individual not covered by an employer sponsored health plan, Medicare, Medicaid, or a government administered health insurance program such as TRICARE, obtain a qualifying private insurance policy or pay a fine. The fine is also commonly known as the “Individual Shared Responsibility Payment, or individual mandate. Essentially it means that if you don’t obtain healthcare, you will face a tax penalty of $325 per adult or 2% of your total annual income, whichever is greater.
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, they are not required to do anything except maintain insurance coverage.
The individual shared responsibility payment is for those individuals who can afford insurance but have decided not to purchase health insurance. In 2014, the tax amount is 2% of your annual income or $325 annually per adult and half of that for non-compliant children, whichever is greater. Only the amount above the tax-filing threshold, which is approximately $10,000 for an individual, is used to determine the penalty.
Every year the fine is scheduled to increase. By 2016, the fine is expected to be 2.5% of your annual income or $695 per adult annually, whichever is greater. For future years 2017 and above, the penalty will be determined by cost of living, inflation, and other financial factors.
These tax penalties will be assessed when filing your income taxes for that year, which are due by April 15 unless you get an extension. 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%.
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 in the event you become sick or hospitalized.
Obamacare Exemption Requirements
Some individuals are exempt from paying the fine including but not limited to individuals experiencing financial hardship and members of identified religious organizations that already receive exemption status from the Internal Revenue Service.
Individuals who have met certain requirements will be exempt from having to pay the individual responsibility payment if they have met 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% of your household income. All Americans who have low income where a Health Insurance Marketplace policy would exceed 8% of their total household income should qualify for an exemption.
- 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 the taxpayer voluntarily decides to file a tax return, the taxpayer can still claim the exemption.
- You are a member of a federally recognized tribe, or you qualify for health services through an Indian health services provider. All 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. However, no distinction is made as to if full membership or less than full membership is acceptable. Adult members can apply for exemption on behalf of their minor children. However, once a child reaches 21 years of age, the child 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 similar 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 US citizens, nationals of the United States, or are not lawfully present in the United States. Not being lawfully present is defined as an individual who is a nonresident alien or does not have lawful immigration status.
Obamacare Hardship Exemptions Qualification Requirements
Hardship exemptions are for those individuals who financially cannot afford to pay for health insurance, or the health insurance would exceed 8% of their gross household income. You might qualify for a hardship exemption if you meet 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 an expected dependent who has been denied Medicaid or CHIP, you might be eligible for an exemption if a court order exist 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 does not offer the expanded Medicaid that is cited in the Affordable Care Act.
- Your health insurance was canceled, and you cannot afford any of the insurance plans offered on the Health Insurance Marketplace.
- 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 Health Insurance Marketplace, and it is usually much more affordable than standard health insurance premiums. However, the deductible is usually much higher, and the deductibles can range anywhere from $1,000 to $7,000.
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.
It is also important to note that you are not required to purchase catastrophic insurance in the event you are approved for an exemption. The Health Insurance Marketplace will automatically offer catastrophic insurance plans to individuals who qualify for an exemption. You can either accept or deny the coverage. It may be in your best interest to accept it. You may want to consider the possibility of being subjected to a financial disaster in the event you are confronted with a major medical emergency, and you do not have any type of health insurance coverage to cover the cost.
Are Uninsured Children Subjected to the Individual Shared Responsibility Tax?
Yes they are. Every child must have the minimum essential coverage as defined in the Affordable Care Act or have qualified for an exemption. If the parents have failed to provide the minimum essential coverage for the child, the parents will owe the individual shared responsibility payment when filing their income taxes for the designated calendar year. It is also important to note that it does not matter if the parent claims the child as a dependent, the parent will still be responsible for the individual shared responsibility payment if the child is defined as a dependent in accordance with the Internal Revenue Service 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. The 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 have addressed this situation and have authorized the Health Insurance Marketplace and State Exchanges to grant hardship exemptions to the custodial parent if the child is not eligible for Medicaid or fail to qualify for the Children’s Health Insurance Program (CHIP).
The regulations also provide special rules in determining whether or not a taxpayer is liable for the shared responsibility payment of an adopted child. If the taxpayer legally adopts a child and claims the child on his or her tax return, the taxpayer is not liable for the fine within the year in which the adoption occurs. Also, if a parent places a child up for adoption within 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. Senior citizens must have Medicare Part A or Medicare Part C to qualify for the minimum essential coverage. 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 very popular option for anyone who is 65 years of age or older. Fore more information regarding medicare enrollment and or general medicare information, an excellent resource is MedicareEnrollment.com, Medicare.net as well as 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 a U.S. citizen is not physically residing in the U.S. for at least 330 days within 12 months, the individual may be treated as having the minimum essential coverage for the entire tax year.
How to Apply for an Obamacare Exemption
If you are seeking an exemption because you are unable to afford coverage, a member of a federally recognized tribe, incarcerated, or a member of a health care sharing ministry, you have the following 2 options:
- The exemptions can be claimed when you complete your federal tax return. The deadline for completing your federal tax return is in April 15th.
- You can apply for an exemption by completing the appropriate form. The forms and instructions on how to complete the forms can be obtained by visiting healthcare.gov.
What Documentation Will I Have to Provide When Submitting My Application?
Documentation can vary depending on your specific situation. However, some of the most common items requested include the following:
- If you are homeless, no additional documentation may be necessary.
- If you were evicted within the last six months, the Health Insurance Marketplace may request that you provide a copy of the eviction notice or foreclosure notice.
- If you received a shut off notice from a utility company, you may be instructed to provide a copy of the shut off notice along with the application.
- If you are the victim of a domestic altercation or involved in a domestic dispute, additional documentation may not be needed.
- If a family member recently died, you may be required to provide a copy of the death certificate or other documentation as proof that the individual is deceased.
- If your home was subjected to a fire, flood, or any other natural disaster resulting in substantial damage to your property, a copy of the police report and insurance claim may be required.
- If you have filed for bankruptcy within the last six months, you may be instructed to obtain a copy of the filing and submit it with your application.
- If you have accrued medical expenses within the last 24 months that you are presently unable to pay, the Health Insurance Marketplace may want to see those bills as proof of financial hardship.
- If you have experienced any unexpected financial increases resulting from caring for a disabled or ill family member, copies of the expenses related to the care of that family member will most likely be requested.
- If you are expecting to care for a child that was denied Medicaid or access to the Children’s Health Insurance Program (CHIP) and a court order exists requesting coverage, a copy of the order and denial notices will probably be required.
- If you are not eligible for Medicaid due to your state not offering expanded Medicaid coverage, a copy of the denial notice may be requested by the Health Insurance Marketplace before a decision can be rendered.
- If your health insurance has recently been canceled, a copy of the cancellation notice will probably be requested in order to complete the eligibility process.
- If you have experienced other problems trying to obtain health insurance coverage, documentation resulting from your inability to obtain affordable health insurance may be requested before the review process can begin.
What Happens after Submitting My Application for an Exemption?
After submitting your application to the Health Insurance 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, the Health Insurance Marketplace will contact you by either phone or mail.
Once a decision has been rendered, the Health Insurance Marketplace will notify you by mail of the results. If you are granted an exemption, the Health Insurance Marketplace will assign you an Exemption Certificate Number (ECN), which you will provide to the Internal Revenue Service when completing your end of the year taxes.
How To Appeal If I Am Denied An Exemption?
If you do not agree with the application decision, you can request an appeal. An appeal request must be made within 90 days of the Health Insurance Marketplace rendering its 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, you would need to call 1-800-318-2596. TTY user can call 1-855-889-4325. A written request can also be made by mailing the document to the Health Insurance Marketplace – Exemption Processing at 455 Industrial Blvd., London, KY 40741.
How Long Does An Exemption To Obamacare Last?
Hardships are normally provided one month prior to the hardship. However, the Health Insurance Marketplace does have the flexibility of granting additional months if appropriate. 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 the need of 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. The final regulation reserved on whether Medicaid provided through a Medically Needy Program satisfies the essential minimum coverage and if the shared responsibility payment should be applied to individuals who have only this coverage. Currently, this coverage does not meet the minimum essential standards but it has not yet been determined if a shared responsibility payment will apply if no other insurance coverage is available.
What if I fail to pay the individual shared responsibility tax?
If you fail to pay the individual shared responsibility tax payment, there is a great possibility that it may be deducted from any future tax refunds that you may receive. Interest may also accrue. However, the regulation states that the taxpayer will not be subjected to prosecution or a penalty for failing to pay the individual shared responsibility payment. The regulation prohibits any liens or levies on any property owned by the taxpayer. The saying, “In life there are only two things you can be certain of, death and taxes”, well it is 100% true. If you are absolutely certain that at no point that you will need healthcare, and you are willing to risk not having any level of protection in the event of an accident or life threatening illness, do not compound the risk by becoming a target for the IRS. If you don’t obtain healthcare then simply pay the fine and tax. The IRS doesn’t mess around, just ask Wesley Snipes.
The ACA in its first two years will not impose drastically damaging penalties if you are a low income single individual, but in later years, the penalties will becoming increasingly higher. Even today, lower income individuals have little to no reason at all to not obtain healthcare. Base level “Bronze Plans” are often anti rely subsidized and or cost less than $100 a month.