Do You Qualify for a Health Insurance Exemption?

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By Lisa Zamosky

If you didn't have health insurance in 2014, you could be on the hook for a penalty when you file your taxes. And if you fail to sign up for insurance during the current open enrollment period, you'll also lock yourself into an even steeper fine for 2015.

But what if you couldn't afford health insurance, or you have religious reasons for opposing it? The law allows for exemptions -- and a lot of people are expected to qualify. In fact, according to a Congressional Budget Office report, by 2016, almost 90 percent of the 30 million people still uninsured won't pay the penalty, primarily because they'll qualify for one of nearly two dozen exemptions. Here, experts discuss the five exemptions likely to be most commonly used, as well as how to go about applying for them.

1. You Live in a State that Didn't Expand Medicaid.

Nationwide, about 4 million low-income people will remain uninsured because they live in one of the 23 states that chose not to expand its Medicaid program in 2014, according to the Kaiser Family Foundation. "This should be one of the more commonly used exemptions," says Karen Pollitz, senior fellow with Kaiser Family Foundation.

People with incomes at or below 138 percent of poverty -– about $27,000 a year for a family of three -– won't be eligible for Medicaid coverage if they live in a state that didn't expand the program under the Affordable Care Act. In many cases, these folks also didn't get subsidies to help buy private insurance through the Marketplace because their income was too low to qualify for premium tax credits. The law doesn't provide financial assistance to people with incomes below poverty.

Initially, people in this situation were required to apply for Medicaid and be denied, or to get a hardship exemption certificate by applying through the Marketplace. "The idea was you had to apply to the Marketplace by the end of this year to qualify," says Timothy Jost, a law professor at Washington and Lee University. But the IRS recently changed course, thanks in part to a blog post Jost co-wrote in the journal Health Affairs urging it to do so. Now, this hardship exemption can be claimed on your 2014 tax return.

2. Your Income Is Too Low to File for Taxes

Millions of Americans don't file a tax return because their income falls below the threshold that requires them to do so. That's the case for a single person who earned less than $10,150 in 2014, or a married couple with an income below $20,300.

"If you don't have to file taxes then you are also exempt from the mandate," says Linda Blumberg, health economist with the Urban Institute. Since you aren't required to file a tax return, no action is required to take advantage of this exemption from the health law. "You don't have to apply for the exemption," she says, because it will be automatically applied.

3. Health Insurance Is Too Expensive for You

Despite subsidies to lower costs, health insurance remains unaffordable for millions of Americans. If coverage is too pricey for you, you'll qualify for an exemption. "The rule is you get the affordability exemption if the cheapest cost plan is more than 8 percent [of your income]," Pollitz says.

There are a number of reasons why people might find themselves in this circumstance, she says. For example, individuals with incomes in 2014 of roughly $29,000 and families of four who earned about $59,000 would qualify for a subsidy to help pay for insurance, but would still be required to pay more than 8 percent of their income –- the law's threshold for insurance being deemed too costly.

Some people can stay under that 8 percent threshold by purchasing a less expensive plan, Pollitz points out, "although when they do so they're going to pick up a lot more cost-sharing," she says. But if you're older, the law allows insurers to charge you more than a younger person for the same health plan. For many people in their 50s and early 60s, it's possible even the least expensive bronze-level plan will be too pricey.

That's also likely to be the case for smokers and people living in an area with high medical costs -– two additional factors for which insurers can charge consumers more. If these extra costs tacked onto your health plan premium drive the price of insurance above 8 percent of your household income, you'll be allowed to file for an exemption. You can either claim it when you file your federal taxes, or apply for an exemption certificate through the Marketplace.

4. You Hit the Family Glitch

Here's how this plays out: One member of a family has a job that offers "affordable" health insurance for the whole family, which means no member of the family can get financial help to lower the costs of Marketplace coverage.

But under the law, it's only the cost of the employee's insurance that's taken into account when determining whether job-based coverage is affordable. It meets that standard as long as the employee's insurance premium is no more than 9.5 percent of household income and covers, on average, 60 percent of medical costs covered by the plan. That means even if insurance for a family of four eats up 15 percent of household income, it's still considered affordable as long as the employee's coverage alone meets the law's cost standards.

If the cost to cover your family through work-based insurance in this case exceeds 8 percent of your household income, the family members (not the employee with the "affordable" coverage) qualify for an exemption. "The IRS exemption [taken] at [the time of tax] filing should provide an exemption for most families in the family glitch," Jost says.

5. Hardship and Other Exemptions

There are a host of other defined hardships that may qualify you for an exemption under the health reform law. These include circumstances such as being evicted or facing foreclosure, receiving a shut-off notice from a utility company, filing for bankruptcy or having medical expenses you couldn't pay in the last 24 months. You can see a full list at Healthcare.gov.

In most hardship cases, you'll have to apply for the exemption through the Marketplace, where you can download the forms you'll need to complete the process. In addition, you'll likely have to dig up some paperwork to support your claims, such as a copy of a foreclosure notice or bankruptcy filing.
If you had a gap in insurance coverage of less than three months –- another exemption likely to be widely used, according to Jost –- you can claim your exemption on IRS Form 8965 and send it in along with you federal tax return.

To get help filing for an exemption you can work with a navigator or other people trained to assist. Check Healthcare.gov for listings or by calling 800‑318‑2596.
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