What Is a Health Insurance Exemption?

Woman calculating her taxes will pay no penalty if she has a health insurance exemption.
If you're uninsured, getting a health insurance exemption will help you avoid the tax penalty for going without health insurance. RyanJLane/Getty Images

A health insurance exemption allows you avoid paying the tax penalty for being uninsured if you’re a United States resident without health insurance. If you get a health insurance exemption, you don’t have to buy health insurance coverage during the time you’re exempt; you won’t be punished for being uninsured.

Background

The individual mandate, part of the Affordable Care Act, says all legal residents of the United States have to have health insurance coverage or they’ll face a tax penalty called the shared responsibility payment.

However, the law also says some people are exempt from the individual mandate and its penalty.

Who’s Exempt From Health Insurance?

You can learn more about who’s exempt from the mandate to buy health insurance in “Can You Get a Health Insurance Exemption?” Most of the rules about who’s eligible for a health insurance exemption are straight forward without gray areas. For example, you’re either a member of a Native American tribe, or you’re not. You’re either a member of a health care sharing ministry, or you’re not.

However, one type of health insurance exemption, the hardship exemption, is a little more flexible in defining who’s eligible.  The hardship exemption is meant for folks having financial difficulties or dealing with situations that make it difficult to get or afford health insurance.

Didn’t get health insurance from a health insurance exchange because you were on the run from an abusive partner?

Didn’t get coverage because your house was swept away by a hurricane? Didn't get coverage because you used the money to keep your electricity or water from being cut off? The hardship exemption was made for you. Learn who’s eligible for a hardship exemption in “How To Get a Hardship Exemption From Health Insurance.”

How Do You Apply for an Exemption?

A few health insurance exemptions are automatic and don’t require any type of application or action on your part. Some exemption types can be claimed when you file your yearly federal income taxes. To receive other exemptions, you have to apply with your state’s health insurance exchange. Learn more about which types of exemptions are automatic, which are claimed when filling your taxes, and which require an application in, “How To Apply for a Health Insurance Exemption.”

Learn how to contact your state’s health insurance exchange on HealthCare.gov’s marketplace finder page.

Why Apply for a Health Insurance Exemption Now?

Although you can technically apply for a health insurance exemption at any time, it's smart to apply at the beginning of the year, or as soon as you meet the exemption requirements. Once you have a hardship exemption, you'll be eligible to apply for less expensive catastrophic health insurance even if you didn't meet the requirements to apply for this type of health insurance before.

While catastrophic health insurance has its drawbacks, it allows you to get preventive care without paying for it, and it covers you should a really expensive health care disaster strike. The only people who qualify to buy it normally are those under 30 years old. However, if you get a hardship exemption, you're automatically eligible to buy catastrophic health insurance even if you're 30 or older.

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