In recent years, California has taken steps to improve healthcare accessibility and affordability for its residents. One such measure is the implementation of an individual mandate, which requires all Californians to have health insurance coverage or face a penalty on their taxes.
In this article, we'll go over the details of the individual mandate and discuss its potential impact on you and your healthcare choices.
California established its individual mandate to stabilize and strengthen the state's healthcare system. This initiative reduces the number of uninsured individuals and helps ensure that everyone has access to necessary healthcare services at an affordable rate.
The state modeled its individual mandate after the federal government's mandate in the Affordable Care Act (ACA). While the federal government ended penalties for the ACA individual mandate in 2018 as part of the Tax Cuts and Jobs Act of 2017, the California mandate remains in effect.
Under California's individual mandate, residents must either have qualifying health insurance with minimum essential coverage (MEC), obtain an exemption from the requirement, or pay the Individual Shared Responsibility Penalty when they file their state tax return.
To avoid a penalty, you need MEC throughout the year for:
Most people already have qualifying coverage through:
People can shop for health insurance policies through California's state exchange.
California residents must enroll in qualified health insurance coverage for every month of the year or face a penalty when they file their income tax returns.
According to the Health for California Insurance Center2, the individual mandate penalty for 2023 is a flat amount per each individual in a household. The flat penalty is $850 per adult 18 years or older and $425 per dependent child. The most one household will pay is capped at an annual max of $2,550.
California residents who are exempt3 from penalty assessments include:
To apply for an exemption, you can visit Covered California’s website.
If you’re an employer that offers a fully insured group health policy, your health insurance company should report health coverage information to California's Franchise Tax Board (FTB) by the March 31 filing deadline. Otherwise, they'll face a penalty.
If your insurance carrier doesn't file the required information, or if you offer a self-insured health plan, you must report insurance information by March 31. This requirement is a result of the Individual Shared Responsibility Penalty, which the state government enacted alongside the healthcare mandate. According to the FTB4, not reporting can result in a penalty of $50 per individual with health coverage.
Employers can file their MEC IRs (Forms 1094-B/1095-B and Forms 1094-C/1095-C) electronically or by mail.
Under the ACA's employer mandate, applicable large employers (ALEs), or those with 50 or more full-time equivalent employees (FTES), must offer MEC to at least 95% of their full-time workforce and their dependents. Coverage must meet minimum value (MV) and MEC and be affordable for the employee. Otherwise, they may be subject to the employer shared responsibility provision (ESRP) penalties.
Several other states, including the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont, have also written into law statewide individual mandates. The majority of these states, except for Vermont, have penalties in place for residents who fail to comply with the mandate.
If you're struggling to keep up with the skyrocketing prices of employer-sponsored group health plans, a health reimbursement arrangement (HRA) is the right solution for your budgetary needs.
With an HRA, employers can reimburse employees tax-free for individual health plans and other qualified expenses. This solution for affordable coverage allows a company to know exactly what their max spend would be each month. It also provides a true health benefit to their employees, enabling them to meet the individual mandate for California and avoid a tax penalty.
PeopleKeep offers three types of HRAs:
California's individual mandate has a direct impact on residents of the state. Employees must have health insurance coverage, and employers must report on the coverage status of their employees. Understanding the implications of the individual mandate and taking appropriate action will ensure that you comply with the law and have access to the healthcare you need.
The information in this article is provided for informational purposes and isn't legal advice. Always consult with a tax professional.
Ready to save money with an HRA? Schedule a call with a personalized benefits advisor now!
This blog article was originally published on April 7, 2020. It was last updated on August 24, 2023.