Health Insurance Exemption Criteria—Can You Avoid the Penalty?

How To Avoid the Individual Mandate's Shared Responsibility Penalty

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The law says everyone has to have health insurance. Can you get an exemption?. Image © Peter Dazeley/Getty Images

If you don’t want to pay a penalty tax, you either have to have health insurance or qualify for an exemption from the individual mandate penalty. One of the provisions of the Affordable Care Act, the individual mandate, penalizes people who go without health insurance by making them pay a penalty tax called a shared responsibility payment. There are only two ways around this penalty:

  • Qualify for an exemption from the penalty.

Who Is Exempt From the Individual Mandate’s Penalty?

You’re likely exempt from the individual mandate health insurance penalty if you:

  • Aren’t in the United States legally, OR you live mostly outside the U.S. (for at least 330 days per year)
    This also applies if you are a resident of Guam, American Samoa, Northern Mariana Islands, Puerto Rico, or the US Virgin Islands, and you don’t have a closer connection to the United States or a foreign country than you do to the US possession where you’re claiming residency.
  • Are in jail or prison, unless you're incarcerated pending disposition of charges.
  • Are an Alaskan Native or a member of an Indian Tribe.
  • Have a small enough income that you’re not required to file income taxes
    How much income can you have before you’re required to file income taxes? For 2016, individuals could earn $10,350 before they had to file, and couples could earn $20,700. But, it changes every year. If you’d like to know the filing threshold for any particular year, it’s found in IRS publication 501 for that year, which you can get from the IRS Forms & Publications webpage.
  • Have a religious objection to insurance
    To qualify for this exemption:
    1. You must be a member of a recognized religious sect.
    2. You have to waive all of your Social Security benefits.
    3. The Commissioner of Social Security must agree that your religion opposes insurance for things like death, disability, and medical care.
    4. The Commissioner must find that members of your religion have made arrangements to provide for their dependent members since they aren’t using insurance as a safety-net.
    5. The sect must have been in existence continuously since December 31, 1950 
  • Are a member of a health care sharing ministry.
    Health care sharing ministries are religion-based groups of people who assist each other with paying medical bills. You can learn more about health care sharing ministries from The Alliance of Health Care Sharing Ministries. In order to be exempt from the individual mandate penalty, your health care sharing ministry must have been in existence since 12/31/1999, although new members can join at any time. Additionally, the ministry's yearly accounting audits must be available to the public.
  • Can’t afford coverage
    To be considered unaffordable, the lowest-cost bronze plan in the exchange in your area must cost more than 8.05 percent of your household income in 2018 (new guidelines on this are published annually by the IRS). The premium is based on total costs after any premium tax credits (premium subsidies) are applied, so if you're eligible for premium subsidies, it's very unlikely that you'd qualify for an affordability exemption. If you're not eligible for premium subsidies, however, you may be eligible for an affordability exemption. In areas with particularly expensive insurance, even people with fairly robust incomes can be eligible for an affordability exemption.
  • Have gone less than three consecutive months without coverage
    You’re only allowed to use this exemption once per year, and only the first occasion each year is exempted. For example, if you’re uninsured for one month in February and then again for one month in August, you'll only be exempt from the penalty for February. You'll owe the shared responsibility penalty for August. And the gap in coverage has to be for a duration of fewer than three months—two months is ok, but three months without coverage would result in a penalty for all three months.
  • Have a hardship that legitimately prevents you from getting health insurance
    Your health insurance exchange must decide that you have a hardship affecting your ability to get health insurance. Exchanges use rules and guidelines to make this decision. You can learn more in, "How To Get a Hardship Exemption."
  • You would have been eligible for Medicaid if your state had expanded Medicaid
    If you're in a state that has not expanded Medicaid and the only reason you're deemed ineligible for Medicaid is that your state hasn't expanded to the ACA's eligibility guidelines, you're eligible for an exemption from the penalty. This includes people in the Medicaid coverage gap (ie, with income below the poverty level), but it also includes people with income between 100 percent and 138 percent of the poverty level, who are eligible for premium subsidies in the exchange but who would be eligible for Medicaid instead if their state had accepted federal funding to expand Medicaid coverage.
  • You’re a volunteer with AmeriCorps, VISTA, or the National Civilian Community Corps
    These organizations provide their volunteers with short-term health insurance that isn't considered minimum essential coverage and would not otherwise fulfill the ACA's individual mandate. But the exemption means that there's no penalty for these volunteers.

     

How Do I Get a Health Insurance Exemption?

Your state health insurance exchange is responsible for granting some exemptions, while others must be claimed on your tax return. The IRS has a webpage that explains how each exemption can be obtained.

If you're planning to use an exemption that must be claimed on your tax return, the exchange can answer questions and help you determine whether you're likely to qualify for the exemption. In some cases, a very similar exemption can be obtained in advance from the exchange, to avoid having to wait until you file your taxes.

If your exemption is due to having a small enough income that you don't have to file federal income taxes, you don't actually have to apply for the exemption; it's automatic. If you file taxes even though you don't have to, for example, because you want to get a refund, you won't have to pay the penalty tax.

I Don’t Qualify for a Health Insurance Exemption; How Can I Avoid the Penalty?

If you don't qualify for an exemption and you don't want to owe the penalty, your best bet for avoiding it is to get health insurance coverage.

If you’re unemployed or can’t get health insurance through your employer, your next best option is to try your state’s health insurance exchange. All of the health insurance plans sold through the exchange will meet the rules for minimum essential coverage. The exchange will also check to see if you’re eligible for any subsidies (premium tax credits or cost-sharing reductions) to help you afford coverage and/or reduce the out-of-pocket costs you'll face when you use your health insurance.

Before you shop for health insurance at your state’s health insurance exchange, learn how to pick the health insurance plan that’s the best fit for your healthcare needs and your budget in, “Before You Buy Health Insurance—What to Know When Shopping for Health Insurance.”.

How Much Is the Health Insurance Penalty for an Individual?
How Much Is the Health Insurance Penalty for Families?"

Sources:

Alliance of Health Care Sharing Ministries

Internal Revenue Service. Individual Shared Responsibility Provision – Reporting and Calculating the Payment.

Internal Revenue Service. Revenue Procedure 2017-36.

Legal Information Institute. 26 U.S. Code 5000A (Affordable Care Act).

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