There are a few basic exemptions from the shared responsibility provision that don't involve hardship. You can have a religious objection to health insurance, be a member of a Native American tribe or have low enough income that you're below the threshold of having to file a federal tax return. You're also exempt if you were in jail or were not a U.S. citizen. Finally, if the time you didn't have coverage was less than three consecutive months, that counts as a short gap and won't trigger the shared responsibility fee.
Those are all distinct from the hardship exemption, however. The hardship exemption is unique in that it isn't a clear-cut rule the way the other exemption circumstances are. It's fairly subjective. In this case, it's best to quote the Department of Health and Human Services memo that outlines the hardship exemption guidelines. Someone should be granted a hardship exemption from the shared responsibility requirement under the following circumstances:
- He or she experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan;
- The expense of purchasing a qualified health plan would have caused him or her to experience serious deprivation of food, shelter, clothing, or other necessities;
- He or she experienced other circumstances that prevented him or her from obtaining coverage under a qualified health plan.
The memo gives numerous examples of circumstances that could lead to a hardship exemption, including dealing with the death of a family member, becoming homeless, experiencing a disaster, filing for bankruptcy or incurring significant medical expenses. In addition, if the health insurance marketplace makes a policy change that affects someone's eligibility for an exemption, there's a special enrollment period that gives them some leeway as they transition from exempt to nonexempt.
Most people will obtain hardship exemptions by applying for an exemption certificate through Healthcare.gov. The first step is downloading the appropriate application. It's titled "Application for Exemption from the Shared Responsibility Payment for Individuals who Experience Hardships." Along with a completed application you'll need the Social Security number of anyone applying for a hardship exemption in the tax household. You may need to round up some supporting documentation that will depend on the hardship experienced. For example, if you were evicted, you'll need a copy of that notice. If a close family member died, you need to submit a death certificate or other official death notice.
Once you submit your completed application and supported documentation (if any), you mail it in (the application lists the exact address). The health insurance marketplace will follow up with you with one to two weeks of receiving it and request more information if necessary. If the marketplace grants you an exemption, they'll send you an exemption certificate number (ECN) that you'll need to include on your federal income tax return. Given that timeline, you'll want to apply for a hardship exemption well ahead of filing your taxes. If you're turned down, you can appeal, but that'll take time, too.
Of course, you can apply for some categories of exemption (those involving lack of affordable coverage, financial hardship or incarceration) as part of filing a federal tax return. Others, such as having a religious objection or being eligible for services under an Indian health care provider, will require you to apply for an exemption certification number. When in doubt, check Healthcare.gov.
The Affordable Care Act is a pretty complicated law, but the hardship exemption should help people who have endured some kind of personal tribulation and make sure they don't have to pay a financial penalty because they weren't able to find and purchase health insurance during hard times.
Author's Note: How Hardship Exemption Works
I appreciate how the Affordable Care Act has brought down medical costs for millions of Americans. Once you peer into its inner workings though, you start to see what a half-measure it is, a cobbled patch job on a horribly dysfunctional system. It's frustrating seeing people saddled with massive medical debt or desperately raising funds for a critical procedure (and fearing that it could happen to me), despite the improvements the ACA has made.
- Cohen, Gary. "Guidance on Hardship Exemption Criteria and Special Enrollment Periods." Department of Health and Human Services, June 26, 2013. (Oct. 28, 2014) http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/exemptions-guidance-6-26-2013.pdf
- Internal Revenue Service. "Individual Shared Responsibility Provision – Calculating the Payment." July 25, 2014 (Oct. 28, 2014) http://www.irs.gov/uac/ACA-Individual-Shared-Responsibility-Provision-Calculating-the-Payment
- Internal Revenue Service. "Individual Shared Responsibility Provision - Minimum Essential Coverage." April 2, 2014. (Oct. 28, 2014) http://www.irs.gov/uac/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage
- Internal Revenue Service. "Questions and Answers on the Individual Shared Responsibility Provision." Oct. 1, 2014 (Oct. 28, 2014) http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision
- Waxman, Henry A. "Coverage Denials for Pre-Existing Conditions in the Individual Health Insurance Market." Oct. 12, 2010 (Oct. 30, 2014). http://democrats.energycommerce.house.gov/Press_111/20101012/Memo.Pre-existing.Condition.Denials.Individual.Market.2010.10.12.pdf