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

From 2014 through 2018, there was a nationwide requirement that most people maintain health insurance, and a penalty for non-compliance. As of 2019, there is still such a requirement (and penalty) in New Jersey, Massachusetts, and the District of Columbia. Rhode Island and California will join them in 2020 (so will Vermont, but without a penalty for non-compliance).

A health insurance exemption allows you to avoid paying the tax penalty for being uninsured. If you get a health insurance exemption, you don’t have to buy health insurance coverage during the time you’re exempt, and you won’t be penalized for being uninsured.

In most states, there is no longer a penalty for being uninsured in 2019 and beyond. But the requirement that people maintain health insurance does technically still apply, which means the exemption process still exists. And it's still important in some cases, because one type of exemption (a hardship exemption) is necessary for a person age 30 or older to be allowed to buy a catastrophic health plan (note that this is an ACA-specific term; it doesn't just mean any plan with high out-of-pocket costs).

In the states that have implemented their own health insurance mandates and penalties, exemptions allow people to avoid paying the penalty, despite 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.

The shared responsibility payment applied to people who were uninsured during the time from 2014 through 2018. But it was repealed as of the start of 2019, under the terms of the Tax Cuts and Jobs Act. So at the federal level, there is no longer a tax penalty for being uninsured.

That means you don't need to worry about obtaining an exemption—unless you're either in a state that has implemented its own mandate requiring residents to have health insurance, or you want to have the option to purchase a lower-cost catastrophic health plan.

Hardship Exemption Still Relevant

For people seeking exemptions from the individual mandate between 2014 and 2018, most of the eligibility guidelines for a health insurance exemption were straightforward 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. And it's still relevant in 2019 and beyond because it allows a person to buy a catastrophic plan even if they're 30 or older. Catastrophic health plans have high deductibles (but they're not HSA-qualified) and they can't be purchased with premium subsidies—so they're usually only a good option for people who don't qualify for subsidies. But they allow you to get preventive care without paying for it, and will cover you should a really expensive health care disaster strike. And they're normally only available to people who are under 30 years old. But a hardship exemption allows anyone to buy one, regardless of their age.

The hardship exemption is meant for folks having financial difficulties or dealing with situations that make it difficult to get or afford health insurance. While the penalty for not having coverage was in effect, the hardship exemption could be used to avoid paying the penalty when you went without coverage for a reason that was considered a valid hardship. There's no longer a penalty (in most states), so people who simply want to go without coverage don't need to worry about obtaining a hardship exemption.

But people who want to enroll in a catastrophic health plan (and who aren't under age 30) still need to obtain a hardship exemption. There are a wide range of circumstances that make you eligible for one: You're on the run from an abusive partner. Your house got swept away by a hurricane. You were evicted or had your utilities shut off. Coverage under any other type of plan is unaffordable... it's a long list, and you can learn more about it in “How To Get a Hardship Exemption From Health Insurance.”

In 2018, the federal government made it easier for people to qualify for hardship exemptions by expanding the eligibility guidelines. Under the new rules, people can obtain a hardship exemption if they live in an area where just one insurer offers plans and the lack of choice "has precluded them from obtaining coverage." There's also a hardship exemption available if all the plans in a given area include abortion coverage and that runs counter to the person's values. And there's a catchall hardship exemption for people who "experience personal circumstances that create a hardship in obtaining health insurance coverage." The example given for this particular circumstance involves a situation in which a person needs to see a certain specialist for ongoing treatment, but the specialist is not in-network with any affordable health plans that the person could purchase.

All of this is still pertinent, even though there's no longer a penalty for being uninsured in most states, because of the fact that hardship exemptions are necessary in order to enroll in a catastrophic plan if you're 30 or older.

How Do You Apply for an Exemption?

If you're in DC, New Jersey, Massachusetts, California, or Rhode Island, you can contact your state's health insurance exchange or your state's department of revenue to learn about how the exemption process works. For the most part, state-based rules for exemptions are similar to the ACA's rules, but there are some local differences.

If you're in the rest of the country, there's no longer a need for an exemption unless you're needing a hardship exemption in order to be eligible to enroll in a catastrophic health plan. Hardship exemptions have historically been available through the exchange or via the IRS, but the latter is no longer useful, since it would be done after the year is over, as opposed to before the year begins (if you wait and do it on your taxes, you obviously won't be able to go back and obtain catastrophic coverage for the year that has already passed).

If you want to enroll in a catastrophic plan, you need to request a hardship exemption from the exchange during open enrollment (or even before open enrollment, as soon as the exemption request form for the coming year becomes available). You'll need to secure the exemption before open enrollment ends, so that you can select your plan. And it's not necessarily a quick process.

How Many People Get Exemptions?

The IRS reported in early 2017 that about 6.5 million tax filers owed a shared responsibility penalty on their 2015 tax returns, while 12.7 million filers claimed an exemption (including the exemptions that are obtained via the marketplace, as well as the exemptions that are claimed on the tax return).

The following year, for 2016 tax returns, the IRS reported that 10.7 tax filers had claimed exemptions by April 27, 2017. At that point, only 4 million tax returns had included a penalty for being uninsured in 2016.

So although a substantial number of people have paid the penalty over the years, far more people have been eligible for an exemption.

In 2019 and beyond, people no longer need to claim an exemption on their federal income tax return, since there is no longer a penalty. But obtaining a hardship exemption via the health insurance exchange will continue to allow people to purchase catastrophic plans, if that's their choice. And in a few states, there continues to be a penalty, assessed on state tax returns, for people who are uninsured. In those states, the exemption process continues to be important for people who have a valid reason for being uninsured and want to avoid the penalty.

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  1. Norris, Louise. healthinsurance.org. Will you owe a penalty under Obamacare?

    No longer a federal penalty, but some states impose a penalty on residents who are uninsured. November 8, 2019.

  2. Centers for Medicare and Medicaid Services. Center for Consumer Information and Insurance Oversight. Guidance on Hardship Exemptions from the Individual Shared Responsibility Provision for Persons Experiencing Limited Issuer Options or Other Circumstances. April 9, 2018.

  3. Norris, Louise. healthinsurance.org. What is the ACA's catastrophic plan and who is eligible? September 3, 2019.

  4. Koskinen, John, Internal Revenue Service. Letter to Congress regarding 2015 tax returns (filed in 2016) with regards to ACA provisions. January 9, 2017.

  5. Internal Revenue Service. Tax Payer Advocate. While the IRS Continues to Do a Reasonable Job in Administering the Affordable Care Act (ACA), Taxpayers Still Encounter Difficulties Attempting to Comply With the Complex Provisions. 2017 Tax Filing Season. 

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