Getting ‘Hardship’ Exemption in Obamacare Isn’t So Hard

By Amy Schatz

The Obama administration’s decision allowing consumers with canceled health plans to claim a hardship exemption and avoid paying a tax penalty has highlighted a little-noticed part of the law: It was already relatively easy to avoid the penalty if someone was determined to do so.

The Affordable Care Act’s “individual mandate,” which requires Americans to carry health coverage or pay a penalty starting at $95 in 2014, has a variety of exemptions. A few have received some publicity. Those who don’t make enough money to afford coverage or have religious objections aren’t subject to the mandate.

Less publicized is that people with a variety of life troubles can get a hardship pass.

There are now 14 ways Americans can qualify for a hardship exemption. They include homelessness, eviction sometime in the last six months, having one’s utilities shut off and being a victim of domestic violence.

The full list of hardship exemptions is here.

Two of those reasons–homelessness and domestic violence–don’t require any documentation. The other reasons do require some sort of evidence. One catch-all category (“You experienced another hardship in obtaining health insurance”) requires applicants to “please submit documentation if possible.”

The exemption added Thursday night says that consumers who had canceled health plans and don’t believe they can find an affordable substitute are eligible for a hardship exemption. They need to submit a copy of their cancelation notice.

The administration said it would look at hardship exemptions on a case-by-case basis. The application requires consumers to attest to the truthfulness of their answers under penalty of perjury.

“The president and I want to do everything we can to ensure that individuals with canceled plans have as many options as possible,” Health and Human Services Secretary Kathleen Sebelius wrote Thursday to six senators who had requested the administration do more to help affected consumers.

Mrs. Sebelius said those with canceled plans can also seek bare-bones “catastrophic” health plans on the exchanges. Those plans were previously limited mainly to people 30 and younger.

Reaction broke along familiar partisan lines.

“All Americans deserve a hardship exemption from this train wreck of a law,” House Speaker John Boehner (R., Ohio) said in a statement Friday. Sen. Marco Rubio (R., Fla.) said expanding the availability of catastrophic coverage was “holding a fire sale of cheap insurance” and was “not a responsible fix for a broken program.”

Republicans have attacked President Barack Obama for his now-withdrawn pledge that under his health law, Americans who liked their plans could keep them.

Six Democratic senators, including Sens. Mark Warner (D., Va.) and Mary Landrieu (D., La.), released a statement applauding the move. “This clarifies an option that will help those consumers who have had their plans canceled transition more smoothly into the marketplace,” they said.

One open question is how many people will actually go through the paperwork needed to claim a hardship exemption. Those affected by Thursday’s change already have health insurance and are likely motivated to keep it.

Earlier this year, Obama administration officials said that Americans had until March 31 to get health insurance before they could face the individual mandate tax penalty. The penalty for 2014 is $95 or 1% of taxable income, whichever is greater, and it rises in subsequent years.

How do I qualify for an exemption from the fee for not having health coverage?

Most people must have health coverage or pay a fee (the “individual shared responsibility payment”). You can get an exemption in certain cases.

Hardship exemptions

If you have any of the circumstances below that affect your ability to purchase health insurance coverage, you may qualify for a “hardship” exemption:

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.
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.

How to apply for an exemption

If you are applying for an exemption based on: coverage being unaffordable; membership in a health care sharing ministry; membership in a federally-recognized tribe; or being incarcerated:

You have two options–

You can claim these exemptions when you fill out your 2014 federal tax return, which is due in April 2015
You can apply for the exemptions using the appropriate form:

Note: If you get an exemption because coverage is unaffordable based on your expected income, you may also qualify to buy catastrophic coverage through the Marketplace. This may be more affordable than your other options.

If you’re applying for an exemption based on: membership in a recognized religious sect whose members object to insurance; eligibility for services through an Indian health care provider; or one of the hardships described above:

You fill out an exemption application using the appropriate form:

If your income will be low enough that you will not be required to file taxes:

You don’t need to apply for an exemption. This is true even if you file a return in order to get a refund of money withheld from your paycheck. You won’t have to make the shared responsibility payment.

If you have a gap in coverage of less than 3 months, or you are not lawfully present in the U.S.:

You don’t need to apply for an exemption. This will be handled when you file your taxes.

The individual shared responsibility payment

If you can afford health insurance but choose not to buy it, you must pay a fee known as the individual shared responsibility payment.

The fee in 2014 is 1% of your yearly income or $95 per person for the year, whichever is higher. The fee increases every year. In 2016 it’s 2.5% of income or $695 per person, whichever is higher.

If you’re paying under the $95 per person method, in 2014 the payment for uninsured children is $47.50 per child. The most a family would have to pay under this method in 2014 is $285.

You make the payment when you file your 2014 taxes, which are due in April 2015.

Exemptions from the payment

Under certain circumstances, you won’t have to make the individual responsibility payment. This is called an “exemption.”

You may qualify for an exemption if:

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 (Learn about the filing limit.)
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, and not awaiting the disposition of charges against you
You’re not lawfully present in the U.S.