Has a new Obamacare ‘loophole’ been found? No.

Yesterday while I was traveling someone forwarded me a link to a web site claiming that there was a section of Obamacare (officially the Patient Protection & Affordable Care Act) that provided a complete exemption for people who don’t want to buy health insurance, meaning that no tax could be assessed on the uninsured. Regrettably, this is not true.

At issue is Section 1555 of Obamacare (full text here), which states:


No individual, company, business, nonprofit entity, or health insurance issuer offering group or individual health insurance coverage shall be required to participate in any Federal health insurance program created under this Act (or any amendments made by this Act), or in any Federal health insurance program expanded by this Act (or any such amendment), and there shall be no penalty or fine imposed upon any such issuer for choosing not to participate in such programs.

The language is a little confusing up front, so I can see how some people might read it in such a way that they conclude that there is no mandate to purchase insurance or pay the tax. But reading the entire section, it’s very clear that this provision applies only to an ‘issuer’ of health insurance, i.e. an insurance company or anyone else who takes on the role of an insurer (typically a business that self-insures). 

Basically what it means is that the government can’t impose any fine or penalty on an insurance company that declines to offer insurance through the exchanges. Without this section, the federal government theoretically could look at a state like New Hampshire, where there is currently only one company offering insurance on the health exchange (Anthem Blue Cross & Blue Shield) and order, say, Aetna and United Healthcare to begin offering plans.

But the section has nothing to do with individuals, who are still subject to the tax for being uninsured unless they qualify for one of the other exemptions, which I’ve written about before (see this post, Obamacare exchanges open today – do you really have to buy it?). The two exemptions that people are most likely to be eligible for are the ones for members of health care sharing ministries and anybody whose premiums would exceed 8% of their adjusted gross income.

Another interesting one that I haven’t really addressed before is that members of recognized Indian tribes are exempt, regardless of whether they live on tribal lands. About 1.2% of Americans are considered to be Native American, although the number of Americans who are potentially eligible to join a tribe based on their ancestry is probably two to three times that number.

While 1/32nd probably isn’t going to cut it, there are a lot of tribes that have membership requirements as low as 1/8th (a single great-grandparent) and 1/16th (a single great-great-grandparent) Native American ancestry. If you have some Native American heritage and are interested in pursuing membership (hopefully not just for the Obamacare exemption), you can learn more about various tribal membership requirements at the National Indian Law Library.

And federal law allows recognized tribes to set their own membership requirements (technically, it’s actually citizenship), so there’s nothing in the law that I’m aware of to prevent a particularly entrepreneurial tribe from expanding their membership criteria to allow in people who don’t have a direct ancestral link to the tribe.

There are other exemptions as well, but I generally wouldn’t recommend them – divorce, incarceration, being evicted, having a close family member die, and other life events that are best avoided if possible.

So the story circulating the internet (I’ve seen this bit about Section 1555 elsewhere as well) about a sweeping exemption in Obamacare isn’t correct, the IRS is still able to levy a tax on the uninsured who don’t qualify for any of the listed exemptions on the Healthcare.gov site (although collecting it is another matter, given they can only take it from a tax refund that may or may not exist).

But the exemptions that do exist are fairly substantial, and people who don’t want to buy conventional insurance and don’t want to pay the tax for being uninsured should look at them closely to see if they meet their needs.

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3 Responses to Has a new Obamacare ‘loophole’ been found? No.

  1. maria rose says:

    I did the math based on the 8% of my gross income being the way to judge cost of premium and all of the plans offered in my geographic area exceed that by more than $200 monthly or $2400 yearly. So how is the Affordable Health care affordable to me? I guess my area must have a whole lot of low income people who don’t pay into the system that I have to “share” the cost of covering just like I have to pay extra cost when I had car insurance for the uninsured. I am just glad that my coverage at work has been resolved until the end of 2016 when I enroll for Medicare at the same overcharged price and my income will be less. Figure that.

  2. Mark Darren says:

    Consider the premise that the ACA is ultimately, little more than a Tax Plan, as constitutionally substantiated by the Supreme Court. Unfortunately, the constitutionality challenges associated with healthcare, mandates and redistribution can not be lawfully brought forward until actual damages are incurred post implementation.

    The “insurance” facet of the ACA is a trojan horse for a compulsory decimating of legacy insurance carriers and, the predictably, politically confirmed implementation of single payer mechanisms.

    ACA’s unlimited coverage with guaranteed issue constitutes an unsustainable entitlement program that only an untethered printing press of the U.S Treasury will have to ultimately bail out in a manner that will make former TARP billions seem like pennies.

  3. R.Cole says:

    The Indian Reservations are not the only one’s exempt. All members of the Congress and senate are exempt, all union members are exempt. The law equally applies to everyone, or it applies to no one! The law is suppose to mean what it says and say what it means! This just doesn’t apply to insurance companies. Look up the definition of the words in a Blacks law dictionary. I have played this word game game in front of a jury on my personal level and won. This is not just for insurance companies! This applies to everyone.

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