5 Things Employers Should Know About California’s Individual Insurance Mandate
Two years ago, California joined the ranks of jurisdictions with an individual mandate for health insurance coverage. The five others with a mandate in place in 2020 were the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont.
Below are five things employers should know about the California mandate.
1. The State Requirement Differs from Fed
The “Individual Shared Responsibility Provision” of the Affordable Care Act (ACA) required most Americans to maintain health insurance or pay a fine. However, the fine for not having insurance was removed by Congress as part of the Tax Cuts and Jobs Act of 2017. The tax penalty was reduced to zero after the end of 2018. People without insurance are no longer assessed a federal individual mandate penalty. There are still employer mandates under the ACA’s Employer Shared Responsibility Provision. (See section 5, below.)
Effective in 2020, the California state health insurance individual mandate requires all residents, with some exceptions, to obtain Minimum Essential Coverage (MEC).
A penalty applies if a resident does not have coverage for a minimum of nine months during each calendar year.
The state mandate does not affect employers; it applies to residents.
2. Pay or Play – Or Get an Exemption
Under the California Minimum Essential Coverage Individual Mandate, all state residents must either:
- Have qualifying health insurance coverage;
- Obtain an exemption from the coverage requirement; or
- Pay a penalty when filing their state income tax return.
Penalties are due to the State of California Franchise Tax Board with annual tax returns. They apply for each month residents are without health insurance.
Residents out of compliance with the requirement are subject to one of two penalties, whichever is highest:
- a flat penalty per household member, or
- 2.5% of gross household income (above the state filing threshold).
In 2022, penalties were at least $800 per adult and $400 for each dependent child under age 18 in the household. A family of four without insurance for a full year faces a penalty of at least $2,400.
Amounts due in 2023 (for 2022 taxes) are not yet known, although they are expected to be greater.
Health insurance providers not reporting coverage information to the Franchise Tax Board by March 31 are subject to a $50 penalty per individual.
3. Qualifying Coverage and Exemptions
To avoid a penalty, California residents need Minimum Essential Coverage for each month of the year, including:
- Personal qualifying health coverage
- Qualifying coverage for a spouse or domestic partner, if applicable
- Qualifying coverage for dependents, if any
Residents can satisfy the requirement in a variety of ways, including having qualifying health insurance coverage:
- Provided through an employer-sponsored plan
- Purchased through the Covered California public exchange or directly from an insurer
- Through Medicare (Parts A and C)
- Through Medi-Cal (California Medicaid plans)
Any insurance plan that meets ACA requirements complies with California’s MEC mandate. Additional information is available on the California Department of Managed Health Care website.
4. How to Avoid Individual Penalties
California residents can also avoid an individual mandate penalty if they have income below the state’s filing threshold or they are:
- Uninsured for three consecutive months or less during the year
- Native American
- In the U.S. illegally
- Members of a health care sharing ministry
Residents are also exempt if coverage is considered unaffordable and exceeds the income guideline applicable for the tax year.
Hardship exemptions are also available to those facing personal or family difficulties. That includes homelessness, domestic violence, bankruptcy, eviction, or consequences related to a natural disaster (e.g., a wildfire, earthquake, etc.). More information about exemptions is available on the Franchise Tax Board website.
5. State Individual Mandate Vs. Federal Employer Mandate
The California Individual Mandate does not affect the federal employer mandate. The requirement that employers with 50 or more full-time or full-time equivalent employees offer affordable, minimum value health insurance to full-time employees and eligible dependents still apply. The penalty amount due depends on whether coverage is offered, affordable, and available to all who are eligible.
The federal employer mandate penalties are payable by employers.
The state mandate penalties are payable by individuals (not their employers).
How to Learn More
If you want to offer health insurance and other benefits to your employees, a great place to start is by talking with a broker. A consultation is free and could end up saving you money in the long run. If you don’t already have a broker, you can search for one online.