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. In that regard, it's had significant success, with the uninsured rate dropping below 9 percent by 2016 (although it has increased again in 2017-2018). From 2010 through 2016, the number of people with health insurance in the U.S. has increased by roughly 20 million. 

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—Still in Effect in 2018

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 was implemented in 2014, and became progressively steeper through 2016. For 2017 and 2018, the penalty remained at the same level it was at in 2016. The penalty will be eliminated after the end of 2018, however, as a result of the Tax Cuts and Jobs Act (H.R.1) that was enacted in late 2017. But for 2018, the penalty still applies, just as it has since 2014.

The average penalty for people who were uninsured in 2015 was $470—up from $210 the year before. And according to preliminary data from the IRS, the average penalty was $667 for tax filers who owed the penalty for being uninsured in 2016 and who had filed their tax returns by early March, 2017.

The penalty for people who were uninsured in 2017 will be the same as it was for 2016, and will also be the same for those who are uninsured in 2018.

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 was 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 adopt a 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 2017 but not for long enough to trigger a penalty in 2017, the IRS will add that time onto the total length of your coverage gap if you remained uninsured at the start of 2018. So for example, if you were uninsured in November, December, January, and February, you wouldn't pay a penalty for 2017, since your coverage gap that year was only two months (assuming you were insured from January to October). But your 2018 coverage gap would start from November, and would count as four months—and you'll owe a penalty. If your gap in coverage at the end of 2017 was long enough that you did owe a penalty (for example, October, November, December), then your gap in coverage for 2018 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 (1/12 of the annual penalty, multiplied by the number of months you were 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 2018 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 (this is the same as the 2016 and 2017 penalties; although the flat rate was scheduled to increase for inflation each year starting in 2017, the IRS clarified that the inflation increase for 2017 and for 2018 were zero, so the penalty did not change). 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 is collected when you file your tax return (if you are owed a refund, the IRS will subtract the penalty from your refund).
  • If you have one short gap in coverage that lasts less than three months, you can claim your exemption from the penalty when you file your tax return.

Didn't Congress Repeal the Penalty?

Yes, Congress repealed the individual mandate penalty, under the terms of the Tax Cuts and Jobs Act, enacted in December 2017. Technically, the legislation kept the individual mandate itself in place—the law says people still have to maintain coverage—but the penalty is reduced to $0 by the legislation.

But that provision of the tax bill doesn't take effect until 2019. People who are uninsured in 2018 and not eligible for a penalty exemption will still face a penalty when they file their 2018 tax return in early 2019. 

And although the penalty's days are numbered, the IRS has actually stepped up enforcement of the penalty in 2018. Starting with 2017 tax returns (filed in early 2018), the IRS is no longer accepting returns that don't answer the question about whether the tax filer had health insurance during the year. In prior years, the IRS allowed those returns to be processed, but that is no longer the case.


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