The Affordable Care Act (ACA) created a new system of health insurance in the U.S. in which the amount you pay for your policy is no longer affected by any pre-existing conditions, such as cancer or heart disease. However, you will have to pay a higher amount if you use tobacco. The Act requires, or “mandates,” all Americans to carry insurance that covers 10 essential health benefits, such as hospital stays and prescription drugs. You can buy insurance from various sources, including the Marketplace at the HealthCare.gov website.
If you remain uninsured, you’ll have to pay the individual mandate penalty when you file your tax return. You might qualify for certain exemptions, such as being without insurance fewer than three months in a year. The penalty increases each year until 2017 –after that, it’s adjusted annually for inflation. While the goal of the ACA is to provide all Americans with affordable health coverage, there are a number of ways to legitimately avoid the individual mandate penalty. Free online tools can help you see if you’re eligible for an exemption.
Along with creating the mandate to own health insurance, the ACA ensures that health insurance costs are kept reasonable for American families. There are two exemptions from the individual mandate penalty based on low income:
- when a taxpayer’s annual income is low enough to avoid having to pay income tax;
- when the lowest-cost health insurance policy you can find costs more than 8 percent of your household’s total annual income.
While you can avoid the penalty in either of these cases, it is possible that you are eligible for Medicaid, which means that you have to buy health insurance, according to ACA rules.
There are certain cultural and lifestyle groups in the United States, recognized by the federal government, who are exempt from health insurance requirements. These include:
- members of an Indian or Alaskan native tribe, band, nation, pueblo or other community recognized by the U.S. Department of the Interior, as well as individuals eligible for Indian Health Services care;
- members of a health care sharing ministry, which is a cost-sharing arrangement among people of similar beliefs, usually a not-for-profit religious organization;
- a religious sect, such as the Amish and some other Mennonite groups, that objects to insurance, including Social Security and Medicare.
People whose personal status restricts their ability to work in the United States also are exempt from the penalty for not having essential health care coverage. These exemptions include:
- people who are detained or jailed;
- people who are not lawfully present in the United States.
Being “lawfully present” includes a variety of groups, including lawful permanent residents, refugees and others seeking asylum, those on worker or student visas and those with certain other immigration statuses. If you are lawfully present, then you are eligible to participate in the Marketplace, and therefore potentially subject to the penalty if not covered by health insurance policy.
Hardship exemptions recognize events that place emotional or financial stresses on people, interfering with their ability to obtain health insurance coverage. Among the more unusual situations are:
- those who have received a utility shut-off notice are facing eviction or foreclosure, or are homeless;
- people who have debt from past medical expenses for themselves or those in their care and those who have filed for bankruptcy;
- those who have undergone a significant family trauma, such as experiencing domestic violence or the death of a close family member.
Speak to your tax adviser for additional information.