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“Hardship Exemptions” from the Affordable Care Act’s Insurance Mandate Includes Recent Bankruptcy Filings

By Chuck Kennedy [Public domain], via Wikimedia CommonsCongress passed the Affordable Care Act (ACA), also known as “Obamacare,” in 2010, but some of its more controversial provisions did not take full effect until last year. The requirement that individuals and families either have qualifying health insurance coverage or pay a penalty, formally known as the “Individual Shared Responsibility Payment” (ISRP), became effective on January 1, 2014. The penalty does not become fully effective, however, until 2016. This provision has proven controversial for a variety of reasons. Our goal here is not to delve into the politics, but rather to explore what is required of people who are in serious financial distress. Federal regulations allow multiple exemptions from the insurance requirement and the ISRP, including a hardship that prevents a person from obtaining qualifying insurance. The government has interpreted this to include filing for bankruptcy in the previous six months.

The ACA made a number of changes to the U.S. health care system. The most significant changes affect the health insurance business, which along with Medicare and Medicaid provides most of the financing of health care in this country. People without insurance coverage or access to government assistance often find themselves unable to afford medical care, and medical bills are often a factor in bankruptcy cases. Whether the ACA addresses this issue adequately or appropriately has been a subject of much contention, but it seems clear at this point that it has made a difference for many people.

The “individual mandate,” which requires people to obtain health insurance or pay the ISRP, has been one of the most controversial features of the ACA. The idea behind the individual mandate is that everyone who can afford health insurance should buy a minimal amount of coverage to ensure that enough money is available in the system to cover everyone’s health care costs. If healthy people waited until they were sick or injured to pay for insurance, the theory goes, costs would go up for everyone. This has reportedly happened in states that required insurers to cover pre-existing conditions but did not require people to have insurance.

The federal government and many state governments set up exchanges, or “marketplaces,” to help people shop for insurance, although some of those exchanges had some technical difficulties. This still left people who lacked the resources to purchase insurance facing a penalty for failing to do so.

The hardship exemption to the individual mandate and the ISRP applies to a person who is unable to obtain qualifying health insurance coverage due to a hardship, provided that this is approved by the government through the health insurance marketplace. 26 U.S.C. § 5000A(e)(5), 42 U.S.C. § 18031(d)(4)(H)(ii), 45 C.F.R. § 155.605(g)(1)(iii). Federal regulations identify several specific hardships but also give the Department of Health and Human Services (HHS), which operates the marketplace, discretion to identify additional circumstances meriting an exemption. HHS stated in a June 26, 2013 memorandum that a bankruptcy filing in the prior six-month period entitles a person to a hardship exemption. The individual must file an exemption request form with “official bankruptcy filing documents” dated within the previous six months.

Personal bankruptcy attorney Devin Sawdayi has helped individuals and families in the Los Angeles area deal with tax debt and other issues through the Chapter 7 and Chapter 13 processes since 1997. To schedule a free and confidential consultation with a knowledgeable and skilled advocate, contact us today online or at (310) 475-9399.

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Photo credit: By Chuck Kennedy [Public domain], via Wikimedia Commons.