Many of our clients have been asking questions about the opportunity to receive an exemption from the obligations of the Individual Mandate in 2014. This topic has received a lot of media attention over the last several months. And it’s true! There are a huge number of ways to avoid the Individual Mandate penalty. Recent studies have found that even more Americans may be able to claim an exemption than originally anticipated.
To understand this topic it’s important to understand that the Affordable Care Act as it was passed in 2010 included ways in which taxpayers could avoid the penalty of the Individual Mandate. However the federal Department of Health & Human Services (who is administering the law) has also created additional categories in which the Individual Mandate requirement can be waived.
So there are really two groups: “exemptions” and “hardship exemptions.” The first are those put in place by the rules of the ACA. The second are those created by Health & Human Services. Unfortunately the language that is used by the government and industry is not very consistent or clear. In trying to explain this topic we will call the full set “exemptions,” and differentiate the groupings as “standard exemptions” and “hardship exemptions.”
The first set is mainly related to some of the foundational rules of the ACA (such as affordability, income, religious exemptions, etc.). This is the current list of standard exemptions directly from the Health & Human Services. Each of these allow you to avoid the penalty:
- You’re uninsured for less than 3 months of the year
- The lowest-priced coverage available to you would cost more than 8% of your household income
- You don’t have to file a tax return because your income is too low
- You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider
- You’re a member of a recognized health care sharing ministry
- You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
- You’re incarcerated (either detained or jailed), and not being held pending disposition of charges
- You’re not lawfully present in the U.S.
In addition to this group there are a number of “hardship exemptions” which are generally related to “life circumstances” which would make it difficult to get health insurance (or at least do so during a certain part of the year). The hardship exemptions have been changing since the ACA roll-out but below is the current list (as of the writing of this newsletter):
- You were homeless.
- You were evicted in the past 6 months or were facing eviction or foreclosure.
- You received a shut-off notice from a utility company.
- You recently experienced domestic violence.
- You recently experienced the death of a close family member.
- You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property.
- You filed for bankruptcy in the last 6 months.
- You had medical expenses you couldn’t pay in the last 24 months which resulted in substantial debt.
- You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member.
- You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you do not have the 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.
- You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.
- Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable.
- You experienced another hardship in obtaining health insurance.
After reviewing these lists I’m sure you can understand that most Americans will find SOME way to claim an exemption. The challenge is that the process of claiming an exemption is less than straightforward. Here are some other things to understand about the exemption process:
- “Standard Exemptions” are typically for the entirety of the year, but most of the “hardship exemptions” are for limited periods (normally the month before, after, and during the hardship). This means that you may need to file multiple forms depending on your circumstances
- Most of the “Hardship Exemptions” are approved by Health & Human Services. With the other exemptions some must come via the IRS, some through HHS, and some can come through either channel. Unfortunately there is not a set rule.
- Exemptions that route through the Marketplace can be completed at any point. Qualifying applicants will receive a certificate with an exemption code which will be entered on the tax return.
Your eyes may be “glazing over” at this point. If that’s the case…don’t worry. Our office understands the complicated rules surrounding exemptions, and we can complete all the appropriate forms and documentation. You can contact our office now to start the process, or do it in conjunction with the filing of your tax return. Either way, leave this hassle to our firm!