What Is a Hardship Exemption for Health Insurance?

A hardship exemption offers a specific provision for individuals navigating challenging circumstances related to health insurance coverage. This concept originated with the Affordable Care Act (ACA), allowing people to avoid a financial penalty for not maintaining health insurance.

Defining Hardship Exemptions

A hardship exemption historically provided relief from the individual shared responsibility payment, a penalty assessed for not having minimum essential health coverage under the Affordable Care Act. This penalty was collected by the Internal Revenue Service (IRS) when individuals filed their annual tax returns. The Tax Cuts and Jobs Act of 2017, however, reduced this federal penalty to zero, effective for tax years beginning in 2019. This means that, at the federal level, there is no longer a financial penalty for not having health insurance.

While the federal penalty has been eliminated, some states and the District of Columbia have implemented their own individual health insurance mandates with associated penalties. For residents in these areas, understanding hardship exemptions remains relevant to avoid state-level financial consequences. For individuals aged 30 or older, a hardship exemption can also be a prerequisite for enrolling in a catastrophic health plan through the Health Insurance Marketplace.

Qualifying Hardship Circumstances

Numerous specific circumstances may qualify an individual for a hardship exemption. These are generally severe financial or personal difficulties that prevent someone from obtaining health coverage. Common qualifying events include experiencing homelessness, facing eviction or foreclosure, or receiving a shut-off notice from a utility company. Individuals who have recently experienced domestic violence or the death of a close family member may also be eligible for an exemption.

Other recognized hardships involve significant financial strain, such as having filed for bankruptcy within the last six months or incurring substantial medical debt that could not be paid within the last 24 months. Unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member can also qualify. Furthermore, experiencing a natural or human-caused disaster that resulted in substantial property damage is another basis for an exemption.

For many of these circumstances, specific documentation is required to support the claim. For instance, an eviction or foreclosure notice, a utility shut-off notice, or official bankruptcy filing documents are typically needed. In cases of a family member’s death, a death certificate or funeral service program may be requested. Some hardships, such as homelessness or domestic violence, may not require specific documentation.

Application Procedures

Once an individual meets the eligibility criteria for a hardship exemption and gathers the necessary supporting documentation, the application process begins. For most hardship exemptions, particularly those allowing enrollment in catastrophic plans, the application is submitted through the Health Insurance Marketplace. This typically involves completing a specific application form provided by the Marketplace. The application requires detailed information about the household and the specific hardship experienced. Supporting documents proving the qualifying circumstance must be submitted along with the application.

After submission, the Marketplace reviews the application and documentation. Individuals can generally expect a response within a few weeks, and they may be contacted for additional information if needed. If the exemption is approved, the applicant will receive an Exemption Certificate Number (ECN).

Implications of Receiving an Exemption

Receiving a hardship exemption has direct implications for an individual’s health coverage status and financial obligations. The exemption does not provide health insurance coverage; it merely waives the financial penalty for not having coverage for a specified period. This means that individuals granted an exemption are still uninsured and responsible for the full cost of any medical care they receive.

It is important to retain this Exemption Certificate Number (ECN), as it may be needed for tax records, particularly if filing for a past tax year when a federal penalty was in effect or if residing in a state with an individual mandate. Hardship exemptions are typically granted for a limited duration, often covering the month before the hardship, the months of the hardship, and the month immediately following. In some situations, an exemption might be granted for a full calendar year. If the hardship persists, or if continuous exemption is needed, a new application may be required for subsequent periods. If an individual remains uninsured after their exemption period concludes and lives in a state with an active individual mandate, they could become subject to state-level penalties.