How Long Can You Go Without Insurance & Not Owe a Penalty?

The ACA allows for a "short gap" in coverage—here's how it works

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The overarching goal of the Affordable Care Act was to extend health insurance coverage to as many Americans as possible. And so far, the number of people with health insurance has increased by about 18 million since 2013.

But while access to health insurance is important, it's also important that people maintain their coverage going forward. Keeping as many people as possible in the risk pool - especially when they're healthy and not in need of immediate care - keeps premiums affordable.

And while health insurance coverage is certainly not cheap, it would be far more expensive if people could just wait until they were sick before purchasing coverage.

A Penalty for Being Uninsured

The ACA has plenty of carrots in the form of guaranteed-issue coverage and subsidies to make coverage and care more affordable, including premium subsidies, and cost-sharing subsidies. But there's also a stick, in the form of a financial penalty for people who fail to maintain health insurance coverage throughout the year.

The penalty has gotten progressively steeper since 2014, and the average penalty is expected to be almost $1,000 for tax filers who owe the penalty for 2016 (about five times as high as the average penalty was in 2014).

A Short Gap in Coverage—How Does That Work?

But there are numerous exemptions from the penalty. One of them is a provision that allows people to have one short gap in coverage during the year, as long as it's less than three months long.

This is somewhat self-explanatory, but there are still some points that might need clarification:

  • The gap in coverage has to be less than three months long. As long as you have coverage for at least one day in the month, you're considered to have coverage for that month. So for example, if a health plan through a former employer were to end on the 15th of March (not a common scenario for a plan to end on a day other than the last day of the month, but it's possible), you could be uninsured for the rest of March, all of April, and all of May. But you'd need to have coverage in place for June in order to avoid the penalty. And individual health insurance is now only available with first-of-the-month effective dates (unless you have a new baby or adopted child and are backdating the coverage to the date of the birth/adoption).
  • You only get an exemption for one short gap in coverage per year. So if you're uninsured for one month in June and then uninsured again for a month in September, you would not be exempt from the penalty in September.
  • If you were uninsured at the end of 2015 but not for long enough to trigger a penalty in 2015, the IRS will add that time onto the total length of your coverage gap if you remained uninsured at the start of 2016. So for example, if you were uninsured in November, December, January, and February, you wouldn't pay a penalty for 2015, since your coverage gap that year was only two months (assuming you were insured from January to October). But your 2016 coverage gap would start from November, and would count as four months - and you'd owe a penalty. If your gap in coverage at the end of 2015 was long enough that you did owe a penalty (for example, October, November, December), then your gap in coverage for 2016 would start counting as of January - ie, they won't double-penalize you for the same months, but you can't put two gaps of two months each back-to-back at the end/beginning of the year and avoid the penalty.
  • If your gap in coverage lasts three months or longer, you'll owe a penalty, and it will apply to the entire gap. The penalty amount is prorated based on how long you're uninsured, but if your gap in coverage is three months or longer, none of the uninsured months are exempt from the penalty.
  • The penalty for the full year in 2016 is the greater of: $695 per uninsured adult (half that amount for a child), up to $2,085 for the whole tax household, OR 2.5% of household income above the tax filing threshold. Your prorated monthly penalty is 1/12 of the annual penalty amount. If you have a gap in coverage of three months or longer (and you're not eligible for one of the other exemptions from the penalty), you'll have to pay 1/12 of the total penalty times the number of months you were uninsured. The penalty will be collected when you file your 2016 tax return in early 2017.
  • If you have one short gap in coverage that lasts less than three months, you can claim your exemption form the penalty when you file your tax return.

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