- General overview of exemptions
- How do I get a penalty exemption?
- Hardship exemptions and catastrophic plans
- Exemptions you get from the exchange
- Exemptions you get when you file your taxes
- Exemptions you can get from the exchange OR the IRS
In a Nutshell
- The ACA requires almost all Americans to have health insurance or face a tax penalty. But there are lots of exemptions, which is what this article is all about.
- The number of uninsured people who qualify for an exemption each year is larger than the number of people who have to pay a penalty.
- There is still an individual mandate penalty for people who are uninsured in 2018. If you’re uninsured in 2018 and don’t qualify for an exemption, the penalty will show up on your 2018 tax return in early 2019.
- Hardship exemptions cover a broad range of situations, and the Trump Administration has expanded the list of reasons a person can qualify for a hardship exemption from the individual mandate penalty, making it easier for more people to get an exemption. For 2018 only, they’re also allowing people to claim general hardship exemptions on tax returns, instead of having to obtain some of them from the exchange [general hardship exemptions are described here, in section (d)(1)].
- In addition to the situations that already counted as hardships, you can now get a hardship exemptions if you live in an area where there’s only one insurer offering plans in the exchange (or zero insurers, but that didn’t happen anywhere in 2018), or if the only available exchange plans cover abortion and you’re opposed to that. Hardship exemptions are also available if you “experience personal circumstances that create a hardship in obtaining health insurance coverage under a QHP,” because, for example, a specialist you need to see does not participate in the networks of any of the available exchange plans.
- A hardship exemption allows you to purchase a catastrophic plan, even if you’re 30 or older (without a hardship exemption, these plans are only available to people under the age of 30). So the expanded guidelines for hardship exemptions make it easier for people to be eligible to buy catastrophic plans, and that will continue to be the case in 2019 and beyond, even after there’s no longer an individual mandate penalty. The mandate itself will remain in force, albeit without a penalty to enforce it, but having a hardship exemption will continue to make people age 30+ eligible to purchase catastrophic plans. See more on this below, in the section titled “Hardship exemptions and catastrophic plans.”
- If you’re uninsured and you don’t have an exemption, the amount of the penalty for being uninsured in 2018 is the same as it was in 2016 and 2017 (either $695 per uninsured adult and $347.50 per uninsured kid, OR 2.5 percent of household income, whichever is greater). You can use our penalty calculator to see how much your penalty would be.
- States can implement their own individual mandates and penalties. Massachusetts has an individual mandate that pre-dates the ACA. The District of Columbia and New Jersey will both have individual mandates starting in 2019. Vermont will join them in 2020, and other states may do so as well. State-based individual mandates will have exemptions available, although they won’t all be the same as the current exemptions for the ACA’s individual mandate.
Starting with the 2015 tax season (for 2014 returns), tax returns began including information about health insurance. For most insured Americans, reporting coverage to the IRS is a very simple process, and involves checking a box stating that they had coverage during the year. This applies to everyone who has Medicaid, Medicare, employer-sponsored health insurance, or individual market coverage (including on and off-exchange coverage, along with grandmothered and grandfathered plans).
But what if you didn’t have health insurance? There’s a tax penalty for not having coverage (and yes, it still applies in 2018 — it won’t be eliminated until 2019, so it will still show up on tax returns that people are filing in early 2019), but people without coverage are actually more likely to qualify for an exemption from the penalty than to be subject to the penalty. In January 2016, the IRS reported that 7.9 million tax filers were subject to the penalty based on being uninsured in 2014, while 12.4 million tax filers claimed an exemption from the penalty. Similarly, the IRS reported in January 2017 that for the 2015 tax year, 6.5 million tax filers were subject to the penalty, while 12.7 million filers claimed an exemption (the total uninsured rate dropped from 2014 to 2015, so the total number of tax filers who had no insurance in 2015 was lower).
The penalty will eventually be repealed, under the Tax Cuts and Jobs Act that was enacted in December 2017. But the legislation doesn’t repeal the individual mandate penalty until 2019. For 2018 and all prior years, the individual mandate penalty remains in effect. People who are uninsured in 2018 will still face a penalty when they file their taxes in early 2019, unless they’re eligible for an exemption.
How do I get a penalty exemption?
You’re granted some exemptions by the IRS when you file your taxes; some exemptions come from the exchange; some can be obtained either way. Here’s a summary from the IRS (note that for 2018 only, general hardship exemptions can be granted by the exchange or by the IRS, rather than only by the exchange).
If you request – and are granted – an exemption from the exchange, the exchange will send you an exemption certificate number (ECN), which you’ll use to complete Part 1 of Form 8965 when you file your taxes.
If possible, request an exemption from the exchange well in advance of filing your taxes, so that you’ll have the ECN by the time you file (or, if the exemption is denied, you’ll know before filing your taxes). But if you haven’t received your ECN by the time you file your tax return, you can write “pending” on form 8965 in column C where the ECN would go.
Hardship exemptions and catastrophic plans
Some of the exemptions described below are specifically considered “hardship exemptions.” This includes a general catch-all category of hardship exemptions [described here in sections (i), (ii), and (iii)], but it also includes:
- Your cost for the cheapest health plan in the exchange would be more than 8.05 percent of your income (8.3 percent in 2019)
- Your income is below the tax filing threshold.
- Your income is at or below 138 percent of the poverty level and you’re in a state that hasn’t expanded Medicaid (in other words, you’d be eligible for Medicaid if your state did expand Medicaid).
- You live in an area where there’s only one insurer offering plans in the exchange (or zero insurers but that hasn’t happened anywhere yet), or if the only available exchange plans cover abortion and you’re opposed to that.
- You “experience personal circumstances that create a hardship in obtaining health insurance coverage under a QHP.”
All of the general hardship exemptions can be claimed on 2018 tax returns or granted by the exchange, although they can only be granted by the exchange in other years.
Hardship exemptions will continue to be important in 2019 and beyond, because they allow people age 30 and older to purchase catastrophic health plans. As an aside, catastrophic plans generally have lower premiums than bronze plans (despite having fairly similar coverage) because catastrophic plans are in their own pool for risk adjustment purposes. Compared with the pool of insureds in metal-level plans, catastrophic plan enrollees tend to be younger, healthier, and wealthier (since catastrophic plans can’t be used with subsidies, and are thus generally not selected by people who are subsidy-eligible). Catastrophic plans in a given state only share risk adjustment money with other catastrophic plans in the state; they don’t have to send money into the risk adjustment pool to offset higher-cost patients in the metal-level plans.
HHS has made it easier for people to obtain hardship exemptions and is making it easier for people to claim hardship exemptions in 2018. People who want to purchase a catastrophic plan for 2019 can seek a hardship exemption from the exchange. If it’s granted, they’ll be able to purchase a catastrophic plan during open enrollment, which will run from November 1, 2018 to December 15, 2018 in most states.
Exemptions you get from the exchange
- Religious exemption
- Hardship exemption. For 2018 only, people can claim general hardship exemptions on their tax return or from the exchange. In April 2018, the guidelines for hardship exemptions were expanded by CMS, allowing exemptions for people in areas where all plans cover abortions, areas where only one insurer (or zero insurers) offers plans in the exchange, or where a personal hardship is created due to the plan options available in the exchange — for example, the person needs access to a certain specialist, and none of the available plans in the exchange have that specialist in-network. CMS has confirmed that people can apply for a hardship exemption for the current year “or up to two calendar years prior,” meaning that a person can seek a hardship exemption in 2018 that would be applicable to 2018, 2017, or 2016.
- Coverage is considered unaffordable based on your projected income for the coming year (the exemption based on your actual income at the end of the year can be claimed instead on your tax return). For 2018, coverage is considered unaffordable if your premiums (after any available subsidies are applied) for the lowest-cost bronze plan in the exchange would be more than 8.05 percent of your household income (note that HHS has finalized a change to allow this exemption to be based on the cost of the lowest-cost metal-level plan in the exchange, to account for areas where no bronze plans are available; the IRS also implemented a similar change — detailed below — for people who seek the affordability exemption on their tax returns). In 2018, there are no bronze plans available in a total of 24 counties in three states: Coshocton, Darke, Erie, Harrison, Holmes, Logan, Ottawa, Shelby, Van Wert, Williams, and Wyandot in Ohio; Brown, Door, Kewaunee, Manitowoc, Marinette, and Oconto in Wisconsin; Chelan, Douglas, Ferry, Lincoln, Pend Oreille, Skamania, and Stevens in Washington.
- You would have been eligible for Medicaid (because your household income is under 138 percent of poverty level), but were deemed ineligible solely because your state did not expand Medicaid.
- You’re a volunteer with AmeriCorps, VISTA, or the National Civilian Community Corps, with a short-term plan through the volunteer organization. (Short-term coverage is not considered minimum essential coverage and would normally result in a penalty.) Volunteers in these programs also qualify for special enrollment periods to obtain Obamacare-compliant coverage at the start or end of their service.
Note that although there are 12 state-run health insurance exchanges, Connecticut’s is the only one that processes its own exemptions. The rest all have HHS process their exemptions, just as it does in all of the states that use HealthCare.gov.
Exemptions you get from the IRS when you file taxes
- You had one short gap in coverage, not more than two months long. (For all years after 2014, a coverage gap of three months or longer makes you subject to the penalty if you’re not otherwise exempt. The exemption for a gap in coverage only applies to the first gap in coverage you experience during the year; if you’re uninsured for a month in April and another month in September, you’d pay a prorated penalty for the September gap).
- The lowest-cost metal-level plan would cost more than 8.05 percent of your household income in 2018 (for 2019, this is 8.3 percent). This is based on your actual income, not your projected income; if you’re looking for an exemption based on your projected income, you have to get it in advance, from the exchange. To claim the exemption from the IRS, it will be based on the actual income that you report on your tax return after the year is over. In prior years, they used the cost of the lowest-cost bronze plan to make the eligibility determination for an affordability exemption, but the IRS changed this in 2017, and are using the cost of the lowest-cost metal-level plan, as some areas of the country don’t have bronze plans available in the exchange.
- Your income is below the tax filing threshold (you’re automatically exempt from the penalty. But if you’re in a state that has expanded Medicaid, you’re probably eligible for free coverage, as long as you’ve been legally present in the US for at least five years).
- You would have qualified for Medicaid, but you’re a resident of a state that did not expand Medicaid (note that a similar exemption is available from the exchange, if you apply for Medicaid and are found ineligible due to the lack of Medicaid expansion in your state).
- You lived entirely or mostly (at least 330 days of the year) outside the United States, or you’re not legally present in the U.S.
- Coverage is unaffordable for your household because of the family glitch.
Exemptions granted by the exchange or the IRS
- FOR 2018 ONLY, you can claim a general hardship exemption on your tax return (ie, without first obtaining an exemption certificate number from the exchange), or obtain it from the exchange.
- The lowest-cost plan would have been more than 8.16 percent of your household income in 2017, or more than 8.05 percent of your household income in 2018. As noted above, you can get this exemption from the exchange based on your projected income for the year, or from the IRS when you file your taxes, based on your actual income.
- You would have been eligible for Medicaid but your state has refused to expand Medicaid (as noted above, you’ll get the exemption from the IRS based on your residence, or from the exchange based on your unsuccessful application for Medicaid).
- You were enrolled in a health care sharing ministry, described in 5000A(d)(2)(B).
- You’re an American Indian or Alaska Native. (Additional beneficial provisions in the ACA apply though, and will likely be more helpful than the penalty exemption.)
- You were incarcerated.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.