Various state-wide individual mandates went into effect in 2020, including California’s, that ultimately impacts residents whether they are insured with a major medical plan or not. California modeled their individual mandate after the federal mandate that was included with the Affordable Care Act (ACA).
Penalties for failure to obtain individual insurance
Starting January 1, 2020, California residents must be enrolled in qualified health insurance coverage for each month of the calendar year or face a penalty when they file for their 2020 income taxes. The penalty for not having health insurance is calculated at a rate of $695 per adult and $347.50 per child or 2.5% of gross income above the filing threshold, whichever is higher.
California residents that are exempt from penalty assessments include individuals whose income is below the tax filing threshold, are members of a health care sharing ministry, or are incarcerated.
Employers must report uninsured employees
Starting with the 2020 tax year, self-funded employers will need to report the employees that had health coverage throughout the year. The information must be sent to employees by January 31, 2021. Employees will use this document to prove they were insured for the 2020 tax year when filing their state income taxes.
Requirements for applicable large employers (ALEs)
Under the ACA’s employer mandate, applicable large employers (ALEs) are required to offer minimum essential coverage (MEC) to at least 95% of their full-time workforce (and their dependents) so that coverage meets minimum value (MV) and is affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H 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, with the exception of Vermont, have penalties in place for residents that fail to comply with the mandate.
Employers of all sizes, that are struggling to keep up with the skyrocketing prices of group health insurance to cover their employees, might find a health reimbursement arrangement (HRA) to be the right solution for their budgetary needs. An HRA allows employees to spend and then be reimbursed each month for individual health plans and other qualified expenses with employer-funded money. This solution allows a company to know exactly what their max spend would be each month while providing a true health benefit to their employees, all while meeting the individual mandate for California and avoiding a tax penalty.