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What if I can't afford insurance under health care reform?
A guide to hardship exemptions

 

Amy Higgins

In 2014, Americans will be required to purchase health insurance or face fines -- and many are wondering how their finances will be affected when that time comes. But even though politicians promise affordable coverage, for some, even the most affordable coverage may cost too much. What options do these people have?

Options in adverse circumstances

When the cheapest option is still too expensive, you can ask for an economic hardship exemption to avoid a tax penalty. According to the nonprofit education group OpenCongress.org, if the cheapest health care plan available on your state's insurance exchange would cost more than 8 percent of your annual income, you would be exempt from the penalty for not having coverage.

For example, if your annual salary is $44,000, slightly above 400 percent of the federal poverty level, you would not be required to pay a tax penalty for not having coverage if the cheapest plan available cost more than $3,520 for the year, OpenCongress.org explains. For a couple earning $60,000 annually, they would not be required to pay a tax penalty for not having coverage if the cheapest plan cost them more than $4,800 for the year.

If you qualify for a hardship exemption, you might consider a catastrophic health insurance plan in the individual market, according to the Kaiser Family Foundation. In 2014, catastrophic plans (which have much lower premiums in exchange for high deductibles) will be available only to those granted hardship exemptions and to those under age 30. All other Americans will have to buy traditional plans.

Catastrophic health insurance provides coverage only for major medical expenses. And before coverage kicks in, you'll have to pay a deductible. Keep in mind that these plans still will be obligated to provide preventive care without requiring co-payments and deductibles, as well as three primary care visits a year, according to Kaiser.

A piece in the health care reform puzzle

Hardship exemptions tie into other aspects of the health care reform law. You may have already heard about the subsidies that some Americans will get to help pay for coverage. These subsidies, which will come in the form of tax credits, will be granted to those whose income is between 133 percent and 400 percent of the federal poverty level, according to Kaiser.

The exchanges will have a variety of plans available in different coverage tiers (from "platinum" plans, which will cover 90 percent of costs, to "bronze" plans, which will cover 60 percent). The tax credit can be used toward any of these plans. The amount of the subsidy will be determined by the cost of certain health plans available on the market and are intended to prevent those with low incomes from having to pay too much for health insurance premiums.

However, those making more than 400 percent of the federal poverty level (400 percent of the poverty level was $43,560 for an individual in 2011) will not receive subsidies. The hardship exemptions are intended to prevent those who are not eligible for subsidies from having to pay too much (more than 8 percent of their income) for insurance, according to OpenCongress.org.

Other hardships

What if the numbers show that you can technically "afford" insurance but you don't think you can? What if you feel you have extenuating circumstances?

Details about many aspects of the health care reform law still are being worked out. Massachusetts, the only state that already has a health insurance mandate, has a variety of ways to qualify for a hardship exemption. According to the state's health care laws, residents may qualify for hardship waivers if, during the year, they:

  • Were homelessness, had than 30 days of overdue rent or mortgage payments, or received an eviction or foreclosure notice.
  • Received a shut-off notice for utilities or had utilities shut off.
  • Had non-cosmetic medical or dental out-of-pocket expenses, excluding premium payments, totaling more than 7.5 percent of income.
  • Experienced domestic violence, the death of a spouse, or an aging parent or ill child who required full-time care.
  • Experienced a flood, fire or other major natural disaster.
  • Were unable to buy food or clothing because of the requirement to buy health insurance.
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