Researched by licensed + unbiased insurance experts. Learn More
Image: J. Stephen Conn / Flickr
This year, we estimate that more than 1.5 million people in the United States will qualify for the Obamacare penalty exemption. Officially called the “Marketplace affordability exemption”, the little-known provision under the Affordable Care Act (ACA) is designed to offer relief for people who make too much to qualify for Obamacare tax credits and make too little to afford a bronze plan. Looking at available Healthcare.gov data for 37 states, we identified the counties in the U.S. where it’s more likely for you to qualify for the exemption – counties where this affordability gap exists. In some regard, it’s good that more people will qualify for the penalty exemption in 2018; however, fundamentally, it means that Obamacare plans have simply become too unaffordable for many.
Obamacare Tax Credits (Obamacare “Subsidies”)
With the 2018 health insurance Open Enrollment Period underway, millions of people are turning to the Obamacare exchanges to find the right healthcare coverage for themselves and their families. And it’s no secret that health insurance can come at a major financial cost.
As a way to mitigate these costs and to make insurance more affordable, the government offers tax credits to those whose annual household income is less than 400 percent of the federal poverty level (FPL). These tax credits are often referred to as “Obamacare subsidies”. That designation, though, causes some confusion between these tax credits for consumers and the subsidies provided to insurance companies; for the sake of consistency, we refer to these Obamacare tax credits as subsidies.
Do You Qualify for Obamacare Subsidies?
For 2018 health insurance coverage, 400 percent of the FPL is $48,240 for an individual – let’s call this number the “subsidy cutoff”. If you’re an individual who makes less than the subsidy cutoff ($48,240), then you are eligible for Obamacare subsidies.
Obamacare Penalty Exemption (Marketplace Affordability Exemption)
Under the ACA, people who can afford to buy healthcare but choose not to get a health insurance plan are required to pay the Obamacare penalty (“shared responsibility payment”). There’s been lots of talk in Washington about removing this “individual mandate”, but for the time being it still very much applies.
There are limited cases, though, where you can be exempt from the Obamacare penalty. The most significant of them is the Marketplace affordability exemption.
Obamacare Penalty Exemption (“Marketplace Affordability Exemption”)
The Marketplace affordability exemption from the individual mandate applies to you if:
- You make more than 400 percent of the FPL (meaning: if you make more than the subsidy cutoff of $48,240) AND
- If your household income falls below a certain threshold – let’s call this the “exemption threshold”.
In order to qualify for the Obamacare penalty exemption, your household income must be between $48,240 and the exemption threshold amount in your county. This penalty exemption threshold is dynamic; it’s based on 1.) the lowest-cost bronze-level Marketplace plan available in your county and 2.) a certain percentage of your annual household income (a percentage that the federal government changes every year).
Not on the Map? Calculate Whether You Qualify for an Obamacare Penalty Exemption
Make more than the subsidy cutoff ($48,240), but don’t see county data on our map? You can manually calculate whether you may qualify for an exemption.
To determine whether you qualify for the exemption in 2018:
- Calculate 8.05 percent of your annual household income. For example, if you’re an individual making $50,000, 8.05 percent would be equal to $4,250.
- Find the lowest-cost bronze plan available in your county; calculate the annual cost for coverage. You can use the tax tool offered by Healthcare.gov to do this. Once you’ve found the cheapest bronze plan in your county, multiply the monthly premium by 12 to get your annual costs. Let’s say you find that the lowest-cost bronze-level plan costs $358 per month – that’s $4,296 for the year.
- Compare the two amounts. In order to qualify for the Obamacare penalty exemption, determine if the second amount (the cost of the lowest-cost bronze plan) is higher than the first amount (percentage of your household income). In this example where the annual salary is $50,000, the second amount ($4,296) is higher than the first amount ($4,250). This person qualifies for an exemption.
Counties Where This Affordability Gap Exists
Where in the United States does this affordability gap exist? The counties highlighted in our map are counties in the country where it’s possible that an individual’s annual household income is:
- Too high to qualify for Obamacare tax credits (that is: exceeds the subsidy cutoff of $48,240) AND
- Low enough that a person can’t afford the lowest-cost bronze plan available to them.
Looking at the Data
Our map uses plan data across the 2,689 counties in the 37 states that use the Healthcare.gov exchange (excluding Alaska and Hawaii, which use different numbers for the federal poverty level). We looked at individuals aged 21, 27, 30, 40, 50, 60 and calculated what the “exemption threshold” is for each age and county, which we compared to the individual subsidy cutoff of $48,240.
We did the same calculation for 2017 plans and compared the number of counties where this situation is possible. When the exemption threshold is higher than the subsidy cutoff, it’s possible to both make too much to qualify for a subsidy and make too little to afford a bronze plan.
Comparing 2018 data to 2017 data, we found that the affordability gap has become more prevalent across the country. In many areas of the country, the number of people who can qualify for an Obamacare penalty exemption has increased significantly.
Where It Gets Complicated: Making Less Than the Subsidy Cutoff
Generally, if 1.) you make more than the 2018 subsidy cutoff of $48,240 and 2.) you can’t afford the lowest-cost bronze plan in your area, you should be able to qualify for an Obamacare penalty exemption. There are cases, though, where a person makes less than the $48,240 subsidy cutoff and still manages to qualify for the exemption. In these cases, whether a person gets an exemption depends on how much he or she gets in Obamacare subsidies.
Getting an Exemption Even If You Get Subsidies
If you make less than $48,240, you qualify for Obamacare subsidies. Usually, getting these subsidies would disqualify you from the Obamacare penalty exemption. This is because these tax credits are meant to help you afford a Marketplace plan.
But these tax credits vary in amount from person to person and they’re based on many different factors. Because of this, there are cases where 1.) a person qualifies for Obamacare subsidies and 2.) still can’t afford the lowest-cost bronze plan in their county – and this would qualify them for the Obamacare penalty exemption. We highlight this issue in the following example.
Not Getting Enough in Subsidies and Qualifying for an Exemption (Example)
Jack lives in a county where the lowest-cost, bronze-level plan costs $358 per month ($4,296 for the year).
Jack makes $30,000 per year. This means that 8.05 percent of Jack’s income is $2,550.
The cost of the cheapest available bronze plan ($4,296) is higher than 8.05 percent of Jack’s income ($2,550), which means that Jack’s income is less than the exemption threshold and technically can’t afford healthcare. BUT because Jack also make less than $48,240, he’ll qualify for Obamacare subsidies.
In this case, whether Jack qualifies for an Obamacare penalty exemption will depend on how much he receives in Obamacare tax credits.
|Cost of Cheapest Bronze Plan: $4,296 | Cost of Cheapest Bronze Plan (Monthly): $358|
|8.05% of Your Household Income: $2,550 | 8.05% of Your Household Income (Monthly): $212.50|
If Monthly Tax Credits Let Jack Afford Lowest-Cost Bronze
Whether or not a bronze plan is considered “affordable” is based on the monthly costs. Currently, per Jack’s household income of $30,000, an Obamacare plan is considered affordable if it costs less than $212.50 per month.
He ends up qualifying for $200 in monthly Obamacare subsidies. With an additional $200 per month to help pay for an Obamacare plan, Jack’s monthly healthcare budget goes up to $412.50 and can now afford the lowest-cost bronze plan; therefore, he no longer qualifies for an Obamacare penalty exemption.
If Monthly Tax Credits Still Leaves Lowest-Cost Bronze Unaffordable
What if Jack ends up qualifying for only $100 in monthly Obamacare subsidies? In that case, his monthly healthcare budget increases to $312.50. This amount, though, still isn’t enough to cover the monthly costs of the cheapest available bronze plan ($358). Even though Jack qualifies for Obamacare subsidies, he still can’t afford Obamacare coverage; in this case, Jack qualifies for an Obamacare penalty exemption.
Alternatives to Obamacare Coverage
The cost of health insurance plans offered through the Obamacare exchanges have simply become too unaffordable for many. Because of these ever-increasing healthcare costs, many alternatives have seen increases in popularity. While many of these alternatives don’t cover all of the essential health benefits under the Affordable Care Act, they can provide you with at least some coverage. You can read more about Marketplace health insurance alternatives here.
Taking the Next Steps
While the map we offer is a useful tool, it only predicts whether you qualify for an Obamacare penalty exemption for 2018 taxes (not for the upcoming 2017 tax filing). Additionally, consult Healthcare.gov to double-check your exemption status.
For More Reading: