Under the Affordable Care Act (ACA), most individuals need to have health insurance coverage in order to avoid paying the “individual shared responsibility payment.” However, a recent analysis by the Congressional Budget Office (CBO) finds that 87 percent of uninsured won’t end up paying the fee in 2016.
According to the CBO’s analysis, there are 30 million uninsured Americans, and yet only four million are expected to pay the fee at tax-time.
The reason: there are several exemptions for this fee including “hardship exemptions,” affordability exemptions, membership in a federally recognized tribe, membership in a recognized healthcare sharing ministry, and earning an annual income below the tax-filing level.
The CBO estimated that out of the 30 million uninsured American, 23 million would be exempt from the individual responsibility payment. Out of the remaining seven million uninsured Americans, another estimated three million will be exempt due to “hardship exemptions.” As the analysis points out, only four million of the 30 million uninsured Americans will pay the individual shared responsibility payment.
What Is the Individual Shared Responsibility Payment?
If an individual fails to purchase health insurance that qualifies as minimum essential coverage, and does not qualify for an exemption, they will pay the individual shared responsibility payment. The fee is calculated in one of two ways, and the individual is required to pay whichever amount is higher:
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One percent of yearly household income: the maximum penalty is the national average premium cost for a bronze plan.
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$95 per adult and $47.50 per child under 18: the maximum family penalty is $285.
The penalty will increase each year:
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In 2015, the penalty will be 2% of annual income or $325 per adult.
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In 2016, the penalty will be 2.5% of annual income or $695 per adult.
If an individual in uninsured only part of the year, 1/12 of the yearly penalty applies to each month they are uninsured. However, if an individual has one short gap of less than three consecutive months they are exempt from the penalty.
What are the Exemptions from the Individual Shared Responsibility Payment?
Individuals may qualify for an exemption from the individual shared responsibility payment if they are:
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Uninsured for one short gap, fewer than three months of the year
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Unable to obtain coverage that could cost less than 8% of household income
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Member of a federally recognized tribe
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Member of a recognized healthcare sharing ministry
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Earning an income low enough to have exemption from filing taxes
Read more about exemption from the individual shared responsibility payment here.
What Is a Hardship Exemption?
Many of the individuals who are exempt from paying the penalty have been deemed exempt through hardship exemption.
In order to qualify for a hardship exemption, an individual must fill out an application with the reason applicable to their situation. A hardship exemption is a situation which may have affected an individual’s ability to obtain or pay for health insurance coverage, including homelessness, bankruptcy within the last six months, death of a close family member, experiencing a natural disaster that has caused substantial damage to one’s property, and ineligibility for Medicaid due to one’s state not expanding Medicaid under the ACA.
An individual may apply for an exemption by:
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Claiming the exemptions when filing their 2014 tax return
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Filling out the applicable exemption application form for the specific situation
If the Marketplace deems an individual eligible for exemption, they will mail out a notice of exemption eligibility result. These exemptions can last up to a full calendar year.
How Do These Exemptions Affect the ACA?
The idea behind the individual shared responsibility payment is to increase the number of enrollees in health insurance. This, in turn, makes a larger pool of insured individuals, spreading the risk more widely. The concern is that with these exemptions making it easier for healthy, young people to go without health insurance, the risk pool will be filled with older people or those with significant health problems. This could increase the premiums across the board.
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