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How California's individual mandate affects you

Health Benefits • August 24, 2023 at 7:15 AM • Written by: Holly Bengfort

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.

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What's the purpose of California's individual mandate?

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.

How are you affected by the mandate?

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:

  • Yourself
  • Your spouse or domestic partner
  • Your dependents

Most people already have qualifying coverage through:

  • Employer-sponsored group health insurance plans
  • Coverage purchased through Covered California1 or directly from insurers
  • Medicare (Parts A and C)
  • Most Medicaid plans

People can shop for health insurance policies through California's state exchange.

What are the penalties for individuals who fail to obtain insurance?

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:

  • People who claim religious conscience exemption
  • People who claim affordability hardship or general hardships
  • People who have an income below the tax filing threshold
  • Members of a healthcare sharing ministry
  • Members of federally-recognized Indian tribes, including Alaskan Natives
  • Incarcerated individuals
  • People who have a short coverage gap of three consecutive months or less
  • People offered health coverage that's considered unaffordable
  • Those enrolled in limited or restricted-scope Medi-Cal or another form of coverage from the California Department of Health Care Services

To apply for an exemption, you can visit Covered California’s website.

How must employers comply with the individual mandate?

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.

Federal requirements for applicable large employers (ALEs)

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.

How can employers offer budget-friendly health benefits?

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:

  • Qualified small employer HRA (QSEHRA). The QSEHRA is for small businesses with fewer than 50 FTE employees, and it covers all full-time W-2 employees regardless of their insurance status. However, employees must have MEC for employers to reimburse them tax-free. It can reimburse employees for insurance premiums or out-of-pocket costs.
  • Individual coverage HRA (ICHRA). The ICHRA works for all employers. You can offer it as a standalone benefit or as an alternative health benefit to employees who don't qualify for the current group health insurance plan. An ICHRA can reimburse employees for individual health insurance premiums, out-of-pocket costs, or both.
  • Group coverage HRA (GCHRA). The GCHRA, also known as an integrated HRA, functions as supplementary coverage for out-of-pocket expenses that aren’t completely covered by the group health insurance plan.


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.

  1. https://www.coveredca.com/
  2. https://www.healthforcalifornia.com/covered-california/uninsured-penalty#:~:text=2023%3A%20A%20flat%20amount%20based,an%20annual%20max%20of%20%242%2C550
  3. https://www.ftb.ca.gov/about-ftb/newsroom/health-care-mandate/personal.html
  4. https://www.ftb.ca.gov/file/business/report-mec-info/index.asp

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Holly Bengfort

Holly is a content marketing specialist for PeopleKeep. Before joining the team in 2023, Holly worked in television news as a broadcast journalist. As an anchor and reporter, she communicated complex stories to the vast communities she served on a daily basis. Her background has given her a greater understanding of people and the issues that affect our lives. When Holly isn’t writing, she enjoys reading, exercising, and spending time at the beach.