Health Insurance Exemption Criteria—Why They Still Matter

The Affordable Care Act includes a provision—often referred to as the individual mandate—that requires nearly all Americans to maintain minimum essential health coverage. From 2014 through 2018, that requirement was enforced with a penalty tax called a shared responsibility payment. People who didn't have minimum essential coverage had to pay a penalty—assessed on their tax returns—unless they qualified for an exemption.

Since 2019, however, there has no longer been a federal penalty for not having minimum essential coverage. The requirement to have health insurance coverage is still applicable, but the mechanism for enforcing it (ie, the penalty) was eliminated after the end of 2018 by the Tax Cuts and Jobs Act.

Although there is no longer a federal penalty for not having minimum essential coverage, exemptions from the shared responsibility provision are still important in some cases. This article will explain how they work, how they can allow you to qualify for a catastrophic health insurance plan, and why they're still applicable for penalty avoidance in some parts of the country.

State-Based Individual Mandates

Residents in New Jersey, Massachusetts, California, Rhode Island, and the District of Columbia are still subject to a penalty for not having health insurance.

These states have established their own minimum essential coverage requirements, exemption criteria, and enforcement penalties. Most are closely based on the federal requirements and the federal penalty that applied until the end of 2018. We've kept a list of the federal exemptions below, but people who are subject to state-based insurance mandates and penalties will need to double-check the exemption criteria specific to their state to see if they're eligible for an exemption.

Hardship Exemption Still Necessary If You're 30+ and Want a Catastrophic Plan

Although residents of most states no longer need to worry about obtaining an individual mandate exemption in order to avoid a penalty, people who are 30 or older still need a hardship exemption if they want to be able to purchase a catastrophic health insurance plan.

Catastrophic health plans are a specific type of coverage available in the individual/family market (ie, the term does not just refer to any plan with a high deductible). But a person who is 30 or older cannot purchase a catastrophic plan unless they qualify for a hardship exemption.

In 2018, the federal government expanded the criteria for hardship exemption eligibility, making it easier for more people to qualify. Hardship exemption application forms are available here. The federal health insurance marketplace has an overview of hardship exemption criteria for people who are 30+ and wish to purchase catastrophic health insurance.

In addition to the specific hardships that are listed, an affordability exemption also counts as a hardship exemption for the purpose of being allowed to purchase catastrophic health coverage.

As of 2022, an affordability exemption is available if the lowest-cost metal-level health plan or employer-sponsored health plan available to you would cost more than 8.09% of your household income, after any applicable premium subsidies or employer contributions are applied. This threshold was initially set at 8%, and gets adjusted slightly—up or down—each year for inflation.

(Note that if you have access to an employer-sponsored plan, the coverage is considered affordable—meaning your employer is in compliance with the employer mandate and you're not eligible for premium subsidies in the exchange—if your portion of the premium doesn't exceed 9.61% of your household income; this is not quite the same thing as eligibility for an affordability exemption though, which is why the numbers are a little different.)

Normally, premium subsidies aren't available if the applicant's household income is more than 400% of the poverty level (for a single person buying health insurance in the continental U.S. in 2022, that would amount to an income cap of $51,520 for subsidy eligibility). But as a result of the American Rescue Plan (ARP), this "subsidy cliff" (ie, income level where subsidies end abruptly) was eliminated for 2021 and 2022.

So prior to the ARP (and after the end of 2022, unless Congress reauthorizes the ARP's subsidy enhancements), it was common for a person to have to pay more than 8% of their income for the lowest-cost plan if their income was a little above 400% of the poverty level.

But the ARP changed that for 2021 and 2022. People buying marketplace coverage pay no more than 8.5% of their household income for the benchmark plan (second-lowest-cost silver plan). There are generally multiple metal-level plans (potentially several bronze plans plus one silver plan) priced lower than the benchmark plan, and premium subsidies can be applied to all of those plans. So it would be very unusual for a person to qualify for an affordability exemption in 2021 or 2022, due to the ARP's enhancement of premium subsidies.

However, if the subsidy cliff returns in 2023, affordability exemptions could once again become more widely available.

Who Is Exempt From the Individual Mandate’s Penalty?

Although there is no longer a federal tax penalty for being uninsured, the exemption criteria are still important if you're filing a prior's year's return or amending a return.

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 2018 (the last year the individual mandate penalty was in effect), individuals could earn $12,000 before they had to file, and couples could earn $24,000. 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:
• You must be a member of a recognized religious sect.
• You have to waive all of your Social Security benefits
• The Commissioner of Social Security must agree that your religion opposes insurance for things like death, disability, and medical care
• 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.
• The sect must have been in existence continuously since December 31, 1950.
• Are a member of a healthcare sharing ministry.
• Healthcare sharing ministries are religion-based groups of people who assist each other with paying medical bills. You can learn more about healthcare sharing ministries from The Alliance of Health Care Sharing Ministries. In order to be exempt from the individual mandate penalty, your healthcare 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 (this is still applicable for people who are at least 30 years old and wish to purchase a catastrophic health plan)
• To be considered unaffordable, the lowest-cost bronze plan in the exchange in your area must cost more than 8.09% of your household income in 2022 (new guidelines on this are published annually). 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, especially in 2021 or 2022. 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 will be eligible for an affordability exemption if the American Rescue Plan's subsidy enhancements are allowed to expire at the end of 2022.
• 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 (this is still applicable for people who are 30 or older and wish to purchase a catastrophic health plan)
• 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." Hardship exemption criteria have been expanded by the federal government, and are outlined on the federal marketplace website.
• You would have been eligible for Medicaid if your state had expanded Medicaid (this counts as a hardship for people who are 30 or older and wish to purchase a catastrophic plan)
• 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% and 138% 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?

If you're 30 or older and applying for a hardship or affordability exemption in order to be able to purchase a catastrophic health plan, you'll need to reach out to the health insurance exchange in your state for instructions on how to proceed. Keep in mind that it can be a lengthy process, so you'll need to start well before the enrollment deadline.

If you're in a state that imposes its own individual mandate and penalty (New Jersey, California, Massachusetts, Rhode Island, or DC), you'll need to reach out to the state-run marketplace to see whether you can qualify for an exemption.

Although there is no longer a federal penalty for not having health coverage, you might still need to apply for an exemption if you're filing a prior year's return or amending a return.

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.

Summary

Health insurance exemptions were especially important from 2014 through 2018, when there was a federal penalty for not having health coverage. But even without that federal penalty, they are still important in some circumstances. Millions of people live in states that still impose penalties for not having health coverage, and all of them have an exemption process. And hardship or affordability exemptions are still necessary in order to purchase a catastrophic health plan if you're 30 or older, regardless of where you live.

A Word From Verywell

If you're not eligible for a premium tax credit, a catastrophic health plan might be a good option for keeping your premium costs down. But if you're 30 or older, you're going to need a hardship or affordability exemption in order to be allowed to buy a catastrophic plan. Fortunately, a local broker or navigator will be able to help you determine whether you'll qualify—and if so, assist you with the process of obtaining an exemption.