What if your coverage gap spans two calendar years?

Last week, I wrote a post detailing exactly how the ACA’s “short coverage gap” exemption works.  In a nutshell, as long as your gap in coverage is less than three months long and you maintain coverage for the rest of the year, you don’t have to pay a penalty for being without coverage.

In that post, I explained one other aspect of the short coverage gap rule:  If your coverage gap is at the start of a calendar year, the IRS will look back to the end of the prior year to see how long What if your short coverage gap spans two calendar years?your gap in coverage was (see page 53654 of the IRS regulations on this issue).  But in the example I used in the post, the person was uninsured for just two months at the end of one year, and two more months at the start of the following year.  I explained that although a penalty would not be assessed for the first year (since the IRS doesn’t look past the end of the calendar year to see when your coverage gap ends), a two-month penalty would be assessed for the second year, since the IRS does look back prior to January 1 to see when your coverage gap began.

But that brought up another question… what if a person has a long gap in coverage that does result in a penalty and continues into the following year?

What if you were uninsured for all of 2014, paid a penalty for being without coverage that year, and then obtained coverage during the second open enrollment period but with an effective date of February 1, 2015? Most people would assume that’s counted as a one month gap in coverage for 2015, but if a coverage gap spans two calendar years, you count the uninsured months prior to January as well.

To clarify, I contacted the IRS Chief Counsel’s office and discussed the issue with an attorney there.  In the example above, you’d owe a penalty for all of 2014, and you’d also owe a penalty for the month of January, 2015. 

The penalty for January would amount to 1/12 of the total penalty amount for 2015, assuming you maintain coverage for the rest of the year (for 2015, the penalty is $325 per adult, half that amount per child – up to $975 total, OR 2% of your taxable household income, whichever is greater).

This is certainly a cause for confusion, as we’re still relatively low on the ACA learning curve.  I have no doubt that a lot of people would assume that the person described in that example would be exempt from the penalty for 2015, given that he paid a penalty for all of 2014 and was only uninsured for one month in 2015.  But keep in mind that if you’re uninsured in January, the IRS is going to look back to see if you were uninsured in December and November of the prior year.  If you were uninsured at least those two months in addition to January – thus going over the threshold for the definition of a “short coverage gap” – then your gap in coverage is not considered “short” and you don’t qualify for an exemption from the penalty.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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