Managing gaps in insurance coverage under the ACA.

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I know the individual mandate permits a short gap in coverage of less than three months per year. What if I’m uninsured for the last two months of 2015 and first two months of 2016?

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  • contributor
  • November 3, 2015

Q. I know that the individual mandate allows for a gap in coverage as long as it’s less than three months in a year. But what if I’m uninsured for the last two months of 2015 and also the first two months of 2016?

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A. You would be assessed a penalty for being uninsured in 2016, but not in 2015 (more details in this document on page 53654). The end date of a period without health coverage is never later than December 31, even if you remain uninsured after that date. So for 2015, your uninsured period would be counted as two months (November and December) and would be exempt from the shared responsibility provision because it’s less than three months.

But the start date for an uninsured period begins when you become uninsured, even if that date is prior to January 1. So for 2016, your uninsured window would be counted from November 2015, and would include a four month period.  Thus, you would not qualify for the exemption for a short gap in coverage.  However, your prorated penalty for the 2016 tax year would only apply to January and February, since November and December were in a prior tax year.  Thus, your penalty would be one sixth of the total penalty you would have paid if you had been uninsured for the full year (you can use this penalty calculator to get specific numbers; be aware that the penalty for 2016 will be significantly higher than it was in 2015).

The purpose of the shared responsibility provision – or individual mandate – is to make sure that as many people as possible are in the health insurance pool at all times, and to avoid the adverse selection that would arise if people waited to enroll in a health plan until they were in need of care (open enrollment windows are the other mechanism that prevents adverse selection).

From that perspective, a four-month gap in coverage is deleterious to the overall goals – hence the penalty – even if it happens to span across two calendar years.

It’s important to note that the regulations count a person as having health insurance for a given month as long as coverage is in force for at least one day of the calendar month. So if your plan ends on October 2, you would not be assessed the shared responsibility penalty for October, even though you’d be uninsured for most of of the month.

The IRS has said they will re-evaluate this regulation if it appears that people are taking advantage of it, but the open enrollment periods make it impossible for people to add and drop coverage multiple times throughout the year, so it’s unlikely to be a problem.