While most people must obtain coverage or pay penalties, individuals in these situations will not be penalized if they do not obtain coverage:
- They do not have access to affordable coverage (cost exceeds 8 percent of modified adjusted gross household income)
- Their household income is below the tax filing threshold
- They meet hardship criteria (e.g., recent bankruptcy, homelessness, unreimbursed expenses from natural disasters)
- Their period without coverage is less than three consecutive months
- They live outside the U.S. long enough to qualify for the foreign earned income exclusion
- They reside in a U.S. territory for at least 183 days during the year
- They are a member of a Native American Tribe
- They belong to a religious group that objects to having insurance, including Medicare and Social Security, on religious grounds (e.g., Amish)
- They belong to a health sharing ministry that has been in existence since 1999
- They are incarcerated (unless awaiting trial or sentencing)
- They are illegal aliens
When considering affordability for purposes of exemption from the individual mandate, if the person has access to employer-provided coverage as either the employee or an eligible dependent, affordability of the employer-provided coverage is the only factor considered.
- For the employee, coverage is so unaffordable that no penalty applies for failure to have coverage if the cost of single coverage is more than eight percent of household income
- For a dependent, coverage is so unaffordable that no penalty applies for failure to have coverage if the cost of the least expensive employer-provided dependent coverage is more than eight percent of household income
- If the employee and spouse both have access to coverage through their own employer, the cost for each person’s coverage is based on the cost of their own single coverage, but the totals are then combined to see if the total cost exceeds eight percent of household income
This means that there will be situations in which the employee has to pay a penalty, but family members do not. It also means that a while a low-income person could choose not to purchase coverage (and pay no penalty), he or she also has the option to purchase through the exchange and receive a premium subsidy.
If the person does not have access to employer (or other non-marketplace/exchange) coverage, the measure of unaffordability is the person’s premium after the premium subsidy is applied to the lowest cost bronze plan available through the marketplace/exchange.
Note: PPACA defines “affordability” differently based on the situation – affordability for purposes of the individual responsibility requirement is based on eight percent of household income; affordability for purposes of the premium subsidy is based on 9.5 percent of household income; and affordability for purposes of the employer shared responsibility requirement (now delayed to 2015) is based on 9.5 percent of the employee’s safe harbor income.
The IRS has issued a FAQ about the individual mandate which may be obtained here: http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision
