Limited Options on Obamacare Exchange? There’s an Exemption for That.

Health Insurance

April 26, 2018

Under the direction of the Trump administration, the Centers for Medicare and Medicaid Services announced an Affordable Care Act exemption for people who live in counties with only one option for an on-exchange insurer. Now, people who live in counties with no exchange competition can file for an exemption to the penalty for not carrying insurance.

New Exemption

This new hardship exemption applies only to people who live in counties where there is no competition on the exchange. To use ACA healthcare subsidies to reduce the cost of health plans, consumers must buy their insurance through the federal healthcare marketplace or their own state’s exchange, or a broker who can navigate the marketplace system. In many places, all on-exchange plans are offered through one insurer, so there’s no competition to help drive down prices.

This is the scenario in most counties. In 2018, 51.3 percent of counties have only one insurer option to pick from when purchasing insurance through the healthcare marketplace. That comes to around 1,600 counties. According to the Kaiser Family Foundation, approximately 26 percent of ACA enrollees live in these one-insurer counties.

On the other hand, every county in the United States is covered by at least one insurer. At one point, even that wasn’t guaranteed. In July 2017, multiple counties were in danger of being bare counties – places where no on-exchange plans would be available. Despite having no access to marketplace plans or insurance subsidies, residents of bare counties could still be subject to the penalty for not having health insurance. Fortunately, smaller insurers and larger companies stepped in at the last minute to ensure that customers would have at least one option in every county.

Penalty Fees in 2018

Americans who do not carry health insurance and who aren’t exempt from the requirement are subject to a fee for not complying with the law. Its official name is the “individual shared responsibility payment,” but it’s more commonly known as the “individual mandate.” The fee is the greater amount of: $695 per uninsured adult and $347.50 per uninsured child in your household, or 2.5 percent of your household’s taxable income. The flat fee caps at $2,085 for a family, and the percentage calculation caps at the national average cost of a bronze health insurance plan.

Allowing the exemption for people living in counties with only one on-exchange insurer has the potential to save tax filers thousands of dollars. The penalty fee hasn’t historically been significant for most people, but $695 per person is a lot to some families, especially when the only other option is to purchase expensive on-exchange health insurance.

CMS also announced that this new hardship exemption is retroactive to 2016 and 2017, which could alleviate the financial burden that some families faced when insurers started leaving the exchanges in droves. Exemptions are not automatic. If you think you qualify for this new hardship exemption, you must file a tax return and claim it, or file an amended return for previous years.

Mandate Eliminated for Next Year

In December 2017, President Trump signed into law a tax bill that eliminated the individual mandate starting in 2019, but people must still carry qualifying health insurance until then. Once the mandate isn’t an issue, exemptions also won’t matter. But for 2016, 2017 and this year, people living in counties with only one insurer on the exchange can take advantage of a special exemption from having to pay the fine if they don’t have health insurance.

Since coverage options have dwindled in recent years, more people will have the opportunity to file for the 2018 exemption than in previous years. In 2016, a mere 182 counties had only one insurer option. In 2017, that number jumped to 960 and represented about 33 percent of counties. This year, it soared to over 1,600. Nearly 82 percent of U.S. counties had one or two options on the exchange in 2018.

A Drop in Enrollment?

Thanks to the new hardship exemption for counties with limited choices, approximately 26 percent of current Obamacare enrollees are now eligible to drop their ACA healthcare coverage without being subject to a penalty. It’s possible that they will, but experts doubt that will happen. People still need health insurance, whether it’s expensive or not, and they may be unlikely to file the appropriate paperwork to secure the exemption even if they wanted it. Once the mandate no longer applies in 2019, it’s expected that enrollment numbers will drop then, too, because people will no longer be required to sign up.