A Basic Explanation

Under the Affordable Care Act, many Americans who don’t have health insurance that qualifies as minimum essential coverage will have to pay a penalty. However, some situations, called exemptions, will excuse you from paying this penalty.

There are many reasons why you might be eligible for an exemption. One example: Buying health insurance means you won’t have enough money left over to pay for basic needs like food, shelter, and transportation. You’ll be granted an exemption if the lowest-priced coverage available to you would cost more than 8 percent of your household income.

Expert Advice About Exemptions

There are a number of ways you might qualify for an exemption. Besides health insurance being too costly, circumstances such as recent homelessness, bankruptcy, a death in the family, or the unexpected financial burden of caring for an ill or aging family member—called hardship exemptions—could make you eligible. You might also be allowed an exemption if your state did not expand its Medicaid program, and your income is too high to qualify you for either Medicaid or tax credits. You’ll find a full list of exemptions here.

Keep in mind that although your circumstances may be among those listed as qualifying you for an exemption, you’re not guaranteed approval. Each exemption has a different filing process and requires different paperwork. You can apply for most exemptions when you file your federal tax return. For certain types of exemptions you’ll be able to file through a federal or state marketplace. Instructions to help you fill out an application for many exemptions can be found here.

If you live in a state that runs its own marketplace, it may handle exemptions differently from the federal exchange. The federal government has created guidelines to help states decide who is eligible for a hardship exemption, but states may create their own set of rules, use different forms, or have a slightly different approval process. Be sure to check your state’s hardship exemption requirements carefully to see whether or not you qualify, and exactly how to apply.

What else you need to know

The length of your exemption can vary, depending on your situation. For example, if buying health insurance is deemed unaffordable at the present time, you won’t have to worry about paying a penalty until your finances improve, or an affordable plan becomes available.

If you’re granted a hardship exemption, you might want to consider buying catastrophic coverage. If a life hardship exempts you from the penalty for not having traditional (major medical) health insurance, you might want to consider catastrophic coverage to protect you and your family in the event of an accident or serious illness. Typically, catastrophic plans are only available to people under age 30, but you’ll be able to apply for one if you’re granted a hardship exemption.

Because there are higher healthcare costs up front with these plans, and they don’t cover most services until you’ve reached your deductible, they have lower premiums and, for some people, may be more affordable. And with catastrophic coverage, at least you’ll have some help paying for medical care should anyone in your family have unexpected, and costly, medical bills.

If you think your exemption will be for the short term—less than a year—you might also consider buying a short-term health insurance policy to bridge the gap.