Under the Affordable Care Act (ACA), which is also known as Obamacare, most people are required to have health insurance that qualifies as minimum essential coverage. If you don’t have it, you could face a tax penalty (i.e., individual shared responsibility payment), unless you qualify for an Obamacare exemption.
There are numerous health coverage exemptions from the Affordable Care Act’s individual mandate. We’re going to cover 12 of them today and tell you how to determine if you qualify and where to apply.
Then we’ll share some solutions to help you save money on out-of-pocket medical costs, whether or not you’re exempt from Obamacare.
What are the exemptions from the ACA mandate?
As of March 2018, the Internal Revenue Service listed the following 12 individual mandate exemptions.1
Following this table, we’ll get into some specifics on each type of exemption and how to obtain an exemption by either claiming it on your tax return or having it granted by an ACA Marketplace (i.e., HealthCare.gov or your state health insurance exchange).
|ACA Exemption||Category2||How to Get It3|
|1. Coverage is considered unaffordable||Affordability||Claim on tax return|
|2. Short Coverage Gap||Health coverage-related||Claim on tax return|
|3. Citizens living abroad and certain noncitizens||Other||Claim on tax return|
|4. Aggregate self-only coverage considered unaffordable||Affordability||Claim on tax return|
|5. Resident of a state that did not expand Medicaid||Health coverage-related||Claim on tax return|
|6.Members of a healthcare sharing ministry||Group Membership||Claim on tax return|
|7. Members of Indian Tribes||Group Membership||Claim on tax return|
|8. Incarceration||Hardship||Claim on tax return|
|9. Members of certain religious sects||Group membership||Claim on tax return|
|10. General hardship||Hardship||Marketplace|
|11. Coverage considered unaffordable based on projected income||Affordability||Marketplace|
|12. Determined ineligible for Medicaid in a state that did not expand Medicaid||Health coverage-related||Marketplace|
Affordability (income-related) exemptions
In some circumstances, health insurance may be considered unaffordable. This includes situations in which:
Your income doesn’t meet tax-filing requirements—this amount varies by age and filing status.
For the 2017 tax year, filing thresholds were $10,400 for single individuals under age 65 and $20,800 for those who were married and filing jointly.4
Visit IRS.gov for a complete list of filing status thresholds, and talk with a tax professional to discuss whether or not you need to file taxes.
The lowest-priced major medical plan available to you through a Marketplace or job exceeds 8.16% of your household income.
There are additional life situations that can make it financially or logistically difficult to buy health insurance, and the ACA places them in a category called hardship exemptions.
- Eviction or facing eviction or foreclosure
- Receiving a shut-off notice from a utility company
- Domestic violence
- The death of a family member
- Experiencing a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
- Filing for bankruptcy
- Having medical expenses that you couldn’t pay that resulted in substantial debt
- Unexpected increases in necessary expenses due to caring for an ill, disabled or aging family member
- Claiming a child as a tax dependent who’s been denied coverage for Medicaid and CHIP, and another person is required by court order to give medical support to the child; in this case you don’t have to pay the penalty for the child
- As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace in 2016
- You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid in 2017 under the Affordable Care Act
- Your “grandfathered” individual insurance plan (a plan you’ve had since March 23, 2010 or before) was canceled because it doesn’t meet the requirements of the Affordable Care Act and you believe other Marketplace plans are unaffordable
- You had another hardship. If you experienced another hardship obtaining health insurance, use this form to describe your hardship and apply for an exemption.
Religious and group exemptions
Members of certain groups may qualify for an exemption from the mandate, including those who belong to a recognized healthcare sharing ministry, recognized religious sect with religious objections to insurance, or a federally recognized tribe.
There are additional exemptions, which include serving a prison or jail term, living abroad, adopting a family member and the death of a member of your tax household.
Specific details apply to all exemptions, and more information can be found at HealthCare.gov or by contacting your state exchange.
How do you get an exemption?
Depending on the exemption you qualify for, you will need to either claim it on your tax return or have it granted by HealthCare.gov or a state health insurance exchange. The table at the top of this article [link to jump to that section?] explains where to get each type of exemption.
Claimed on your tax return
In most cases, exemptions are claimed on IRS Form 8965, Health Coverage Exemptions, when you file your tax return.6 If you use take software, you will receive the form after answering a series of questions about health insurance.
Once you fill it out, that’s it. Your exemption has been claimed, and no further action is needed unless requested by the IRS or your tax professional.
What if you are not required to file a tax return?
If your income is below the filing threshold, then you are automatically exempt and no action is needed.7 If you are not required to file a tax return and do so anyway, you will use Part II of Form 8965, Coverage Exemptions for Your Household Claimed on Your Return, and you will not make a penalty payment.
Read the IRS article “Individual Shared Responsibility Provision – Exemptions: Claiming or Reporting,” for additional details.
Granted by HealthCare.gov or a state exchange
There are a few exemptions that you must apply for and be granted approval to claim. Your application is submitted to a Marketplace, which will review and either approve or deny your exemption.
Exemptions that must be granted by a Marketplace include the following; click on each to see instructions and forms on HealthCare.gov:
If your state does not use the HealthCare.gov platform, visit your state’s exchange website or contact your state’s exchange for application information.
If you have questions about whether or not you qualify for an exemption and how to get one, contact your state’s health insurance exchange. For tax-related help, contact a tax professional.
You’re exempt. How will you pay for healthcare?
Make sure you follow the instructions for getting an exemption to ensure you don’t owe a tax penalty. Once you know you’re exempt from the individual mandate, you will still need a way to pay for healthcare—expected or unexpected.
Without health insurance, you could end up paying for everything from a visit to the doctor’s office to a multi-day hospital stay 100% out of pocket.
Two health insurance alternatives if you’re eligible for an ACA exemption
There are affordable health benefit plans available that can help pay your medical expenses, and they’re available year-round.
Temporary health insurance plans provide short-term benefits for a range of covered expenses when you’re in between Obamacare plans. You can apply and buy within a few minutes. Your plan can start as early as the next day and lasts as few as 30 days.
Read more about short-term plans, and find out what this alternative coverage option could cost you.
Hospital indemnity plans provide fixed-dollar reimbursements, at specific durations, for covered medical expenses related to hospitalization, surgery and critical illness diagnosis. They can be standalone coverage for the year or be paired with a short-term or Obamacare plan.
Learn more about hospital plans and how they work, and find out what this alternative coverage option could cost you.
What if you don’t qualify for an exemption?
You have four options if you don’t qualify for a health coverage exemption.
1. Buy health insurance
You will need to qualify for a special enrollment period if you want to buy an ACA plan outside the annual open enrollment period for health insurance. To become eligible for special enrollment, you must have a qualifying life event such as getting married or divorced, having a child or losing minimum essential coverage
2. Enroll in other ACA-qualifying minimum essential coverage
Not all minimum essential coverage is major medical insurance. Medicaid and Medicare are also considered minimum essential coverage, and they are available year-round if you meet eligibility criteria. Visit the Centers for Medicare & Medicaid Services for more information.
3. Pay the penalty
If you skip buying health insurance and don’t qualify for an exemption from the individual mandate, you could owe a penalty when you file your taxes for the coverage year. Learn more about what to do if you owe the penalty and how to pay it.
4. Purchase alternative coverage
How will you pay for unexpected medical bills if you don’t qualify for a special enrollment period or another type of minimum essential coverage that’s available year-round? Consider a short-term health insurance plan, hospital indemnity plan, or combine the two for more comprehensive benefits coverage.
What happens if you aren’t exempt and don’t have health insurance?
As mentioned above, if you don’t qualify for an Obamacare exemption and don’t enroll in minimum essential coverage, you could owe a tax penalty when you file your federal income taxes the following year. Read “What Happens If I Don’t Have Health Insurance in 2018?” to learn more about the penalty and other potential consequences of going without coverage.
Remember: The individual mandate is still being enforced. Find out more about the mandate under current law and when the penalty will go away as a result of a December 2017 tax repeal.
Do you need a health plan for more than a few months? A hospital plan might be a good option. Find out what a fixed indemnity (aka hospital) health plan is and how it works.
Do you need a temporary health plan to hold you over until you can obtain an Obamacare plan? Short-term health insurance coverage may be for you. What is short-term medical insurance? Get the scoop.