By: Dorothy M. Cociu, RHU, REBC, GBA, RPA
President, Advanced Benefit Consulting & Insurance Services, Inc.
Although I previously informed clients of the individual mandate in California for 2020, I wanted to write up something more formal for your reference.
General Overview
California has implemented an individual mandate that requires individuals and families to have (medical plans) minimum essential coverage (MEC) by January 1, 2020, or pay a penalty. This was done primarily to protect the state’s exchange enrollment, Covered California, as enrollment had dropped by approximately 25% after the federal ACA penalty was reduced to zero with a federal tax change, although they did site other reasons for the mandate. Keep in mind, this is a state mandate and state penalty, not a federal (IRS) penalty. This will be monitored by the Franchise Tax Board in California.
In addition to the state MEC mandate, it also introduced premium assistance for middle-income residents enrolling in Covered California (and was the first state to do so, as far as I know), for those with incomes between 400% and 600% of the federal poverty level. The federal assistance is from 138% to 400% of the federal poverty level. This means that a lot more Californians that previously did not qualify for a subsidy now do. This will help self-employed individuals and others. The subsidy amounts are usually designed to be less than what the employer contributions would pay toward a group health plan, and of course applicable large employers under the ACA (with 50 or more full-time equivalents) are required to offer coverage and it must meet the MEC requirements as well as be affordable by federal standards. So, please don’t assume people will start dropping out of group health plans to buy subsidized coverage in the exchange. Remember, they likely are not eligible if they are employed by an employer who offers a group health plan that meets minimum essential coverage and affordability provisions of the ACA. In fact, they do expect that more people will enroll in group health plans this year all over California during open enrollment or during a special qualifying event, because of the individual state mandate.
Penalties
Penalties are generally similar to the former federal penalties, with a few nuances, and can be complex at times. Penalties apply to individuals and their families with a minimum penalty of $695 for adults and $347.50 for children. The penalties vary, however, depending on the amount of income and number of family members. The maximum penalty a person could be subject to will be 2.5% of the annual household income.
Premium Assistance
Premium assistance is available to Californians who enroll in the state’s exchange, Covered California, unless of course they are offered affordable coverage by their employer. The offer of coverage by an employer applies to all size employers; not just large 50+ ALEs under the ACA. Low income individuals and families may also be available for low cost or no-cost options under MediCal. There is of course more information available at CoveredCA.com.
Exceptions
As with any law, there are exceptions. These can be complex, and some may be eligible for the exceptions through their state tax returns, but some must be processed by Covered California. Some of the exemptions on state tax returns include: Income below the tax filing threshold (ie the person is not required to file or pay taxes); health coverage is considered unaffordable (above 8.24% of the household income for 2020), or if the employee’s self-only coverage combined cost is unaffordable. There is also a short coverage gap of three consecutive months or less for certain non-citizens who are not lawfully present, living abroad, or residents of another state or US territory, as well as members of a health care sharing ministry or members of a federally recognized tribal unit (Indian tribes including Alaskan natives), someone who is incarcerated, or someone who is enrolled in a limited or restricted-scope MediCal coverage or other coverage from the California Department of Health Care Services. Lastly, there are some exceptions for religious exemptions and hardships. I always recommend that you consult with your tax or legal advisors as this can get complicated.
Reporting
Because this is a new state law, we can expect some reporting changes. Because as I said above, this is a state law, it will be reported through the California Franchise Tax Board. We should expect some consistency to the federal tax reporting forms.
As a note to self-funded plans, we need to keep an eye out for this, because remember, your plans are federal plans under ERISA, but this is a state requirement for all residents, so this information will have to be reported on a state level, as well as your normal federal filing.
According to some California General Agencies, some carriers are allowing individuals to enroll outside of their normal open enrollment window, including Aetna, Anthem Blue Cross, California Choice, Kaiser, United Health Care and others, to allow people to enroll in plans and meet the state’s mandate requirements.
I will of course update you if/when other information becomes available!
Disclaimer:
The information contained should not be construed as legal or tax advice. You should seek advice from your attorney or tax preparer as situations vary.
