Hardship Exemption

Key Takeaways

• The hardship exemption was part of the Affordable Care Act, signed into law in 2010.
• From 2014 to 2018, those without health coverage faced a fee unless exempt.
• Exemptions covered circumstances like homelessness, eviction, or domestic violence.
• The individual mandate penalty ended in 2019 with the Tax Cuts and Jobs Act.
• Hardship exemptions typically cover up to three months of uncovered periods.

What Was the Hardship Exemption?

A hardship exemption was an Affordable Care Act (ACA) individual mandate exemption that let someone avoid the federal penalty for lacking health insurance. It applied during the penalty years from 2015 through 2018 for situations such as eviction, bankruptcy, or domestic violence. The Trump administration ended the federal penalty starting in 2019 through the Tax Cuts and Jobs Act (TCJA), which removed the need for most hardship exemptions going forward.

How Hardship Exemptions Worked

The Affordable Care Act was signed into law by President Barack Obama on March 23, 2010.1 Commonly referred to as Obamacare, it helped reduce the cost of health care for the American public by creating health care exchanges, expanding the eligibility for Medicaid, preventing insurance companies from denying coverage, and penalizing individuals who weren't covered.

Starting in 2014, most individuals were required to have acceptable health care coverage, which was known as minimum essential coverage. Those who weren't covered were charged a fee called an individual mandate or the Shared Responsibility Payment.2 This was a one-time fee collected by the Internal Revenue Service (IRS) when individuals filed their annual tax returns.3 Those who couldn't afford health care were able to apply for hardship exemptions through the Health Insurance Marketplace.

A hardship exemption may be granted for tax years between 2015 and 2018 for the following circumstances:

Homelessness

You were evicted in the last six months or faced foreclosure.

You received a shut-off notice from a utility company.

You were the victim of domestic violence.

You experienced the death of a close family member within the previous three-year period.

You experienced a fire, flood, or another disaster (natural or man-made) that resulted in substantial damage to your property.

You filed for bankruptcy within the previous six months.

You had medical expenses you were unable to pay in the last 24 months.

You had unexpected increases in necessary expenses related to caring for an ill, disabled, or aging family member.

You expected to claim a child on your tax return who was denied coverage in Medicaid and CHIP, and another person was under a court order to provide medical support for the child (in this case, you did not owe the penalty for the child).

As a result of an eligibility appeals decision, you are eligible for a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a period when you were not enrolled in the QHP.

You are ineligible for Medicaid because your state did not expand its eligibility under the ACA.4

The Trump administration eliminated the individual mandate in 2019, which means those without health insurance were longer penalized. The administration expanded the conditions for approval for the hardship exemption, making it easier to avoid the penalty up until 2018 if individuals:

Lived somewhere with no marketplace plans.

Lived somewhere with just one company selling plans on the marketplace

Couldn’t find an affordable plan without abortion coverage.

Had personal circumstances preventing them from purchasing a marketplace plan, including not being able to find a plan with specialty care.5

As noted above, the individual mandate was eliminated in 2019, which means individuals without health insurance are no longer penalized.

Important

President Biden's health care plan includes bringing back the individual mandate.6

Important Factors for Hardship Exemptions

Hardship exemptions typically covered the month prior to, the month of, and the month after the hardship. The exemption period could be extended up to an entire calendar year in some cases.7 For instance, people who were ineligible for Medicaid because their state has not expanded Medicaid coverage. Individuals were often required to provide documentation to back up their application for an exemption.8