The Conversation

Obamacare's Hardship Exemption Rules Make the Mandate a Paper Tiger

A piece in the Wall Street Journal is getting attention for the claim that the Obama administration has made the individual mandate optional. There is some truth to this though the changes being discussed happened months ago. In fact, the WSJ itself pointed them out back in December.

The Journal story generating all the buzz today is titled "Obamacare's Secret Mandate Exemption." It points out that a recent rule change by CMS allows people to keep their old plans until 2016 instead of just until the end of this year. That document contains a footnote leading to a prior CMS memo, published back in December, which explains who is eligible for the extension. So far, nothing really groundbreaking, just the two-year extension of the right to keep your old plan that we already knew about.

But a link in that second document, the one published in December, takes you to the actual hardship exemption form which people have to fill out if they want to avoid getting hit with a tax penalty created by the individual mandate. And right there on page one of the form is a list of 14 ways you can claim a hardship exemption. Originally there were only 12 ways to claim an exemption. Forbes published a list of the 12 exemptions at the end of last October. They were mostly serious hardships like homelessness, domestic violence or eviction.

The two new exemptions which the administration added in December are different. Option 13 allows you to avoid the mandate if your insurance has been cancelled and you "consider" other plans unaffordable. Option 14 is an even broader catch-all. It reads "You experienced another hardship in obtaining health insurance." The document adds "Please submit documentation if possible." So, in theory, if you claim you had trouble with the website, you could claim a hardship exemption from the mandate.

Both of these last two hardship exemptions have been part of the document since at least December 19th when the CMS memo was published. Back when the change was made, most news stories focused on the new hardship exemption granted under option #13, i.e. people with cancelled plans. But in doing so they failed to mention the even broader catch-all exemption granted by option #14.

Some news outlets did catch it at the time. On December 20th the Wall Street Journal published an article pointing out that it was fairly easy to circumvent the individual mandate using the updated hardship exemption form. Author Amy Schatz even highlighted category 14 saying, "One catch-all category ('You experienced another hardship in obtaining health insurance') requires applicants to 'please submit documentation if possible.'"

So while this isn't a new change to the law and wasn't really a "secret" before this week, these changes are getting some overdue attention now. The reaction to the WSJ story suggests it is only now dawning on many observers just how much of a paper tiger the individual mandate has become. If anyone can claim a hardship exemption, the regulation doesn't mean much. Unless the administration creates rules for grading the severity of undocumented hardships, this really does seem like an escape clause to avoid the individual mandate, at least until 2016.


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