How Hardship Exemption Works

Understanding the Affordable Care Act

Several factors spurred the development of the Affordable Care Act: rising health care costs and ballooning insurance premiums, as well as hundreds of thousands of Americans annually being denied insurance due to pre-existing conditions [source: Waxman]. The ACA imposes limits and price caps on insurance companies and requires them to accept all people who seek health insurance, even those with high-risk pre-existing conditions.

The ACA led to an online marketplace that was created to allow people to compare plans and purchase insurance easily. The law permits each state to create its own marketplace or join other states to form a joint marketplace. The website acts as a portal and takes you to the appropriate marketplace for your state.

Getting rid of pre-existing condition clauses creates a loophole, though. You could simply choose not to sign up for health insurance until you had a medical problem, then get coverage and have the insurance company pay your medical bills. To close this loophole, the ACA requires everyone to maintain health insurance. This mandate is probably the most controversial aspect of the legislation, because the responsibility to maintain health insurance comes with a fee if you don't have a minimal level of insurance coverage at any point during the year. This is known as the shared responsibility provision. While this fee may affect anyone who chooses not to obtain health insurance, it isn't meant to penalize someone who is unable to get health insurance for reasons beyond their control. Hardship exemption arose to give people who were unable to meet the individual mandate a way to avoid the shared responsibility fee.

Next, we'll talk about what qualifies as minimum health care coverage and the actual amounts of the shared responsibility penalty.