Employee Benefits Compliance, Individual Mandate, Laws, Regulations & FAQs

The Individual Mandate: New Hardship Exemption Announced

benefit changes 2014

This article was written by Susan Grassli, J.D.

Beginning January 1, 2014, the Individual Mandate provisions of the Affordable Care Act (ACA) require most individuals to obtain health insurance coverage for themselves and their dependents or pay a tax. Some individuals are excused from the tax in certain circumstances. Those who are excused from the tax include:

  • Not Subject to the Mandate:   Those with religious objections, those not lawfully present (aliens, and non-citizens/nationals), those who are incarcerated 
  • Exempt from the Tax:  Have a gap in coverage of less than three (3) months, Households where required premium contribution is more than 8% of household income, Households below the tax filing threshold, Native American tribes, Individuals who have a “hardship” – to be defined by HHS or the Exchanges

On Oct. 28, 2013, the Department of Health and Human Services (HHS) released a  frequently asked question (FAQ) that provides an additional exemption to the “hardship” category for individuals who enroll in coverage through an Exchange during the initial open enrollment period.  Specifically, an individual who enrolls in an Exchange plan at any time during the initial open enrollment period will not be subject to an individual mandate tax for the months before the coverage takes effect, even if he or she has a gap in coverage that is longer than 3 months.

The initial open enrollment period for the ACA’s individual health insurance Exchanges began on Oct. 1, 2013, and continues until March 31, 2014. If an individual enrolls toward the end of the open enrollment period, the effective date may not start until after April 1, 2014, which creates a longer than 3 month gap in coverage. For example:

  • For individuals who enroll on or before December 15, 2013, coverage will be effective January 1, 2014.
  • For individuals who enroll between the first and 15th day of January, February or March 2014, coverage will be effective the first day of the following month.
  • For individuals who enroll between the 16th and last day of any month between December 2013 and March 31, 2014, coverage will be effective the first day of the second following month.

If an individual has a less than three month gap in coverage, there is already an exemption to the individual mandate tax. However, if an individual enrolls in an Exchange plan between February 16, 2014, and the end of the initial open enrollment period, the coverage will not be effective until April 1 or later. As a result, that person would not be eligible for the 3-month coverage gap exemption, because their gap in coverage would be longer than three months.

In the new FAQ, HHS acknowledged that it would be unfair to require individuals who enroll in an Exchange plan near the end of the open enrollment period to pay a tax. This is because the duration of the initial open enrollment period implies that individuals have until the end of the initial open enrollment period to enroll in coverage through an Exchange before penalties will apply, when that was not the case. This additional hardship exemption will provide relief for anyone in this situation.

The new extended hardship exemption is also no doubt intended to alleviate the concern and frustration many people have expressed with the technical “glitches” in the roll-out of the federal Exchange website. Although people can enroll via phone or snail mail, the bulk of eligible consumers were expected to enroll via the Exchange website, and the technical problems so far have prevented many from enrolling.

Under the new exemption, if an individual enrolls in a plan through the Exchange prior to the close of the initial open enrollment period (i.e., by March 31, 2014), the individual will be able to claim a hardship exemption from the individual mandate tax when filing a federal income tax return in 2015 for the months prior to the effective date of the individual’s coverage.

This exemption will be provided through the federal income tax filing process, without the need to request an exemption from the Exchange. Additional details will be provided in 2014 on how to claim this exemption.