What Was the Hardship Exemption?

The term hardship exemption referred to an exemption granted to individuals who weren't able to afford health insurance due to personal and/or financial circumstances. These exemptions were part of a provision in the Patient Protection and Affordable Care Act (ACA), which was signed into law in 2010. Individuals were required to have acceptable health care coverage or else pay a fee. Individuals who weren't able to afford coverage could apply for an exemption where no penalty was assessed. The fee for uninsured individuals was eliminated in 2019 with the passing of the Tax Cuts and Jobs Act (TCJA).

Key Takeaways

  • Hardship exemptions were granted to individuals under certain circumstances when they couldn't afford to purchase health care coverage.
  • Individuals granted exemptions didn't have to pay the individual mandate or Shared Responsibility Payment for not having health insurance during the hardship period.
  • Notable hardship exemptions were homelessness, eviction, being a victim of domestic violence, or bankruptcy.
  • Hardship exemptions were no longer applicable after 2019 as the individual mandate was eliminated.

How Hardship Exemptions Worked

The Affordable Care Act was signed into law by President Barack Obama on March 23, 2010. 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. This was a one-time fee collected by the Internal Revenue Service (IRS) when individuals filed their annual tax returns. 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.

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.

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

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

Special Considerations

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. 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.