Currently my spouse is covered on my health insurance plan through my employer. At the end of this year he may be incarcerated for 2-3 years. My question is, am I able to drop him from my plan during that time without him being penalized?
An incarcerated person can't use the Marketplace, doesn't owe the fee for not having coverage, and can be dropped from a family plan without penalty. If the incarcerated person is the only other person on a family plan the other family member will qualify for a short special enrollment period where they can switch to an individual plan.
An incarcerated person can be dropped from coverage starting on the day they become incarcerated and then they can enroll in coverage again through special enrollment when they get out (either through the Marketplace or on an employer plan). Employers offer at least 30 days to enroll in special enrollment, but the Marketplace offers 60. The canceling of old insurance and obtaining new coverage should be coordinated clarify to avoid gaps in coverage. For the purposes of the fee it's worth noting that having coverage for even one day of a month counts as coverage.
Once the incarcerated person in released they will begin to owe the fee, so they should ensure they are covered ASAP. Those without income upon getting out of incarceration should look into Medicaid as it was expanded to all low-income adults in many states making it a smart way to transition in between other coverage options.
All the above rules only apply to incarceration. If a person hasn't been convicted of a crime, but is being held, or if they are on probation, parole, or home confinement they will still owe the fee and can still use the Marketplace.