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Small Business Employee Benefits and HR Blog

A Quick Guide to Healthcare Coverage Exemptions

Many Americans are not sure how they are affected by the requirement to have insurance. Under the Affordable Care Act (ACA), most individuals need to have health insurance coverage in order to avoid paying the “individual shared responsibility payment.” Although Americans are required to have health insurance in 2014, many will be exempt from the payment.

To clear up any confusion about the individual shared responsibility provision exemptions, the Internal Revenue Service has released a one-page publication with information on exemptions from the provision and where to obtain them.

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:

  • One percent of yearly household income: the maximum penalty is the national average premium cost for a bronze plan.

  • $95 per adult and $47.50 per child under 18: the maximum family penalty is $285.

The penalty will increase each year:

  • In 2015, the penalty will be 2% of annual income or $325 per adult.

  • In 2016, the penalty will be 2.5% of annual income or $695 per adult.

If an individual is 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.

Exemptions from the Individual Shared Responsibility Payment

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.

Additionally, individuals may qualify for an exemption from the individual shared responsibility payment if they are uninsured for one short gap, fewer than three months of the year or unable to obtain coverage that could cost less than 8% of household income

Read more about exemption from the individual shared responsibility payment here.

Exemptions for the payment can be obtained either through the Marketplace or the Internal Revenue Service, depending on the type of exemption. The IRS’ Individual Shared Responsibility Exemptions chart below shows where to obtain the different types of exemptions.exemptions

Chart Source: IRS

Do you have any questions about the Individual Shared Responsibility provision or exemptions? Leave a comment below.

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