How to Apply for a Health Insurance Exemption

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There is a health insurance problem in America (especially Virginia) right now. The Washington Post reported “Where are the most expensive ACA plans in America? Charlottesville.

For 2018 in Albemarle County, there is only one insurance provider (Optima Health) and they are charging close to $2,000 per month for my family of three to get a basic HSA-ineligible catastrophic plan (the cheapest plan). However, as the law currently stands, if you don’t have health insurance for the year, then you owe a penalty of 2.5% of your household income.

If you choose not to get health insurance, you can apply to have the penalty waived by applying for an affordability exemption. This year, even many wealthy individuals will qualify for an affordability exemption.

According to Healthcare.Gov, the affordability exemption requirements are:

  • Coverage is considered unaffordable if the lowest cost Bronze-level plan available to you through the Marketplace in 2017 is more than 8.16% of your household income.
  • The total cost to you must be more than 8.16%, accounting for any premium tax credit you would qualify for if you enrolled in that plan.
  • If you qualify for this exemption, it may apply to everybody on your tax return.

In 2018, the cheapest offered plan for my family of three is this HSA-ineligible plan costing $1,595.46 per month ($19,145.52 for 2018). $19,145.52 is 8.16% of $234,626.47. This means that so long as I have an AGI below $234,626.47 (nearly a quarter of a million dollars) and above $81,680 (400% of the poverty line that qualifies for a subsidy), I will qualify for an affordability exemption.

However, if I have an AGI of $81,680, then I would qualify for a subsidy of $20,016 for the year, which would make my health insurance free. At an AGI of $81,680 or lower, even though my health insurance costs 23.44% of the AGI (unaffordable), I cannot get an affordability exemption because they are offering a subsidy that makes it free.

This makes the decision process hard for people with an AGI hovering around 400% of the poverty line. If you get health insurance and slip over the line when you got a subsidy, you’ll have to pay back the subsidy on your tax return. If you are estimated as under the line now, you cannot qualify for an affordability exemption, which means you must purchase health insurance to avoid the penalty.

What a sticky wicket!

For older families, the affordability exemption applies to even higher AGIs. For two 64-year olds in Albemarle County, the cheapest plan is $3,755.10 per month or $45,061.20 for the year which is 8.16% of $552,220.59. This means that so long as they have an AGI below $552,220.59 (over half of a million dollars) and above $64,960 (400% of the poverty line that qualifies for a subsidy), they will qualify for an affordability exemption.

If you do choose to apply for an affordability exemption, the steps are as follows:

  • Complete, sign, and mail the application to the address shown on the form.
  • Be sure to include copies of required income documentation such as tax returns, paystubs, or 1099s. This documentation is needed to verify the 2017 income you project on your application. The application includes a complete list of acceptable income documents.
  • You should get a written response from the Marketplace generally within 4 weeks. If your exemption is approved, you’ll get an Exemption Certificate Number (ECN) for each household member who qualifies.
  • In early 2018, when it’s time to file your 2017 federal taxes, write each person’s ECN on IRS Form 8965, Part 1, column “c”.
  • Be sure to include Form 8965 when you file your 2017 federal tax return.

You have until December 15 to apply for insurance but you won’t hear back about the exemption until after Christmas.

Photo by Kristopher Roller on Unsplash
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Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.