Nearly all residents of California are obligated by this requirement to retain Minimum Essential Coverage (MEC) for themselves and their dependents. Those residing in California who have the financial means to obtain health insurance but choose not to procure coverage may face a tax penalty when completing their state tax returns annually.
The Affordable Care Act (ACA), commonly known as Obamacare, enacted in 2010, marked a significant milestone in federal efforts to ensure and standardize accessible health insurance. Among its provisions, the law mandated that nearly all Americans obtain health coverage, although Congress repealed the penalty for this individual mandate in 2017.
As of 2022, only five states—California, Massachusetts, Rhode Island, New Jersey, and Vermont—along with the District of Columbia, maintain requirements for all eligible residents to annually demonstrate proof of health insurance coverage on state tax filings. Individuals without insurance who do not qualify for exemptions are subject to a tax penalty determined by the state, with the exception of Vermont, which does not impose any fees.
What is Health Insurance?
Health insurance specifically pertains to coverage for medical expenses and healthcare services, including doctor visits, hospital stays, prescription medications, and preventive care. It aims to protect individuals and families from the financial burden of medical costs by providing coverage for various healthcare needs.
On the other hand, insurance generally refers to a broader category of risk management products designed to protect against financial losses. This encompasses various types of insurance beyond health insurance, such as:
- Life Insurance: Provides a payout to beneficiaries upon the insured person’s death, offering financial protection for dependents and loved ones.
- Auto Insurance: Covers damages to vehicles and provides liability protection in case of accidents involving automobiles.
- Homeowners Insurance: Protects homes and personal property against damages and losses due to covered perils like fire, theft, and natural disasters.
- Property Insurance: Offers coverage for commercial properties, rental properties, and other types of real estate against damages and losses.
- Liability Insurance: Provides financial protection against lawsuits and claims for damages caused by negligence or wrongdoing.
- Disability Insurance: Offers income replacement in the event of a disability that prevents the insured person from working and earning a living.
While health insurance falls under the umbrella of insurance, it is distinct in its focus on healthcare-related expenses and services, whereas other types of insurance address different aspects of risk mitigation and financial protection.
Is Health Insurance Mandatory In California?
The majority of individuals in California must possess health coverage. Failure to do so may result in a tax penalty, known as the “individual mandate.”
The federal government no longer imposes penalties for lacking health insurance. However, a few states maintain an individual mandate, mandating residents to be covered.
When the Affordable Care Act was enacted, a crucial component was the individual shared responsibility provision, commonly referred to as the individual mandate. This provision represented the nation’s closest approach to universal health coverage.
What is the individual mandate?
The individual mandate, a provision of the Affordable Care Act, mandated that all eligible American citizens and permanent residents obtain basic health insurance, also known as minimum essential coverage (MEC).
Between 2014 and 2019, individuals without coverage faced tax penalties imposed by the IRS. These federal penalties amounted to $695 per uninsured adult or 2.5% of their income, whichever was higher.
In 2017, Congress repealed the mandatory financial penalties at the federal level. While individuals are still technically required to have health insurance, fines are no longer levied on those without coverage. This change in legislation took effect in 2019, rendering the individual mandate obsolete.
In response, several states enacted their versions of the individual mandate, including tax penalties. While the specifics of these mandates vary, all states except Vermont impose a penalty when uninsured individuals file their state taxes.
Which States Require Health Insurance?
Only a few locations maintain an individual mandate for health insurance, which are:
- California
- District of Columbia
- Massachusetts
- New Jersey
- Rhode Island
- Vermont
The specifics of qualifying plans, exemptions, and penalty criteria vary by state. Therefore, it’s essential to familiarize yourself with your state’s regulations.
Generally, any qualifying plan must meet the standards for Minimum Essential Coverage set by the Affordable Care Act. Penalties may not apply if you were only uninsured for a short period. For instance, in California, being uninsured for less than three months in a year exempts you from penalties.
Other states, including Connecticut, Hawaii, and Washington, are also contemplating adopting healthcare mandates.
Below is further information about each state’s individual mandate:
California:
– Effective Date: January 1, 2020
– Qualifying Plans: Available through Covered California
– Exemptions Available: Yes
– Tax Penalty: Yes, paid to the California Franchise Tax Board
– State Health Care Services: Covered California
District of Columbia:
– Effective Date: January 1, 2019
– Qualifying Plans: Available through DC Health Link
– Exemptions Available: Yes
– Tax Penalty: Yes
– State Health Care Services: DC Health Link
Massachusetts:
– Effective Date: May 1, 2007
– Qualifying Plans: All MCC-compliant plans
– Exemptions Available: Affordable coverage and short gaps only
– Tax Penalty: Yes
– State Health Care Services: Massachusetts Health Connector
New Jersey:
– Effective Date: January 1, 2019
– Qualifying Plans: All Minimum Essential Coverage plans
– Exemptions Available: Yes
– Tax Penalty: Yes
– State Health Care Services: Get Covered NJ
Rhode Island:
– Effective Date: January 1, 2020
– Qualifying Plans: See “Health Coverage”
– Exemptions Available: Yes
– Tax Penalty: Yes
– State Health Care Services: HealthSource RI
Vermont:
– Effective Date: January 1, 2020
– Qualifying Plans: N/A
– Exemptions Available: N/A
– Tax Penalty: No
– State Health Care Services: Vermont Health Connect
Vermont requires all residents over 18 to report health insurance on state taxes, but there is no penalty for being uninsured. Therefore, lists of qualifying plans and exemptions to avoid penalties are not applicable. The state recommends all residents have health insurance, providing a health insurance marketplace, but, in policy, it aligns with federal legislation except for requiring yearly coverage reports on taxes.
What Is the Health Insurance Penalty in California?
The penalty for lacking health insurance escalates annually. It’s prudent to weigh the decision of paying the penalty versus enrolling in a California health insurance plan compliant with the Affordable Care Act (ACA). Here’s a breakdown of how tax penalties have increased each year:
2015: The penalty amounted to approximately $325 per adult and $162.50 per child, or 2% of your taxable household income minus the federal tax-filing threshold—the minimum income required by the IRS for filing an income tax return.
2016: The penalty increased to $695 per adult and $347.50 per child, or 2.5% of your taxable household income minus the federal tax-filing threshold.
2017 to 2018: The penalty rose to $695 per adult and $347.50 per child, with a Cost of Living Adjustment (COLA), or 2.5% of your taxable household income minus the federal tax-filing threshold.
2019: Tax fees were waived, relieving uninsured individuals from paying fines during the year.
2020 to 2022: California reinstated the requirement for taxpayers to enroll in health insurance or face penalties during tax season. Depending on income, fees could be approximately $800 per adult and $400 per dependent child or anyone under 18 in the household dependent on your income. Alternatively, individuals are required to pay 2.5% of their gross income above the filing threshold, based on the number of dependents and tax filing status, whichever is higher.
2023: A flat fee is imposed based on the household’s size, amounting to $850 per adult 18 years or older and $425 per dependent child, with an annual maximum of $2,550.
What Are My Options for Complying With Obamacare?
You have several choices for complying with the Affordable Care Act, such as:
- Opt for no insurance: Despite not having coverage, you’ll still be liable for the penalty at tax time in California. It’s essential to weigh this decision carefully before selecting this option.
- Choose inexpensive insurance: Keep in mind that a low-cost insurance plan often fails to meet the minimum essential benefits requirements. Consequently, you may still be subject to the penalty at tax time.
- Enroll in a qualified health plan: This alternative doesn’t necessarily require enrollment through Covered California to avoid the penalty. However, it must be a Covered California plan to qualify for a government subsidy.
- Join a Health Care Sharing Plan (HCSP): Participating in an HCSP exempts you from the tax penalty and may offer lower premiums compared to traditional health insurance plans.
Health Insurance Penalty Options
Due to relatively low penalties, some California residents choose to incur the fine and forego health insurance coverage. Another option is to opt for inexpensive coverage that may not meet the minimum essential benefits requirements and still incur the penalty. In many cases, it’s advisable to compare the penalty for remaining uninsured with the monthly costs of health insurance plans.
For instance, consider a scenario in the tax year 2015: if you were single, under 65 years old, had a taxable income of $50,000, and remained uninsured for the entire year, your penalty would be calculated as follows—taking the greater of $395 or $50,000 income minus $10,150 Federal Minimum Threshold, resulting in $39,850 x 2%, equaling a $797 penalty. In this case, your tax penalty would be $797.
If you remained uninsured in 2017, your penalty would increase to approximately $996, depending on the Cost of Living Adjustment and the Federal Minimum Threshold. At $996 per year, this amounts to roughly $83 per month.
Comparing this penalty with the theoretical cost of $375 per month for a Covered California plan, it may seem sensible to pay the tax penalty for no health insurance. However, in 2023, it’s crucial to carefully assess and calculate the cost of paying monthly health insurance versus paying a fee at tax time.
Understanding the Benefits
According to California law, health plans are required to offer a variety of essential healthcare services, as well as certain additional services. These services are provided when deemed medically necessary, with the definition of medical necessity outlined in your health plan contract, such as the Evidence of Coverage document.
Basic services include doctor and hospital services, covering both inpatient care (overnight hospital stays) and outpatient services, including minor surgeries performed in surgery centers. Additionally, basic services encompass:
– Laboratory tests for diagnostic purposes, such as blood tests, STD tests, pregnancy tests, and select cancer screening tests.
– Diagnostic services like x-rays and mammograms.
– Preventive and routine care, including vaccinations and checkups.
– Mental health care for serious conditions.
– Emergency and urgent care, even when outside of your health plan’s service area.
– Rehabilitation therapy, such as physical, occupational, and speech therapy.
– Some home health or nursing home care following a hospital stay.
– Standing referrals for patients with AIDS, eliminating the need for referral approval for each visit to an AIDS specialist.
– Diabetes services and supplies.
– Routine costs associated with clinical trials for cancer treatment.
– Prosthetic devices or reconstructive surgery after a mastectomy, aimed at restoring appearance or function.
– Prosthetic devices to restore speech function following a laryngectomy, excluding electronic voice producing machines.
– Reconstructive surgery to correct abnormal body structures resulting from various causes, with the goal of improving function or achieving a normal appearance.
– Services related to the diagnosis, treatment, and management of osteoporosis, including bone mass measurement and FDA-approved tests and medications.
– General anesthesia for dental procedures in specific cases.
Most medical health plans typically exclude coverage for dental care, eyeglasses, and hearing aids. Coverage for durable medical equipment varies among plans, with coverage details differing from one plan to another.
Understanding Costs
Understanding the expenses associated with health care plans like HMOs, PPOs, or EPOs can be challenging. These plans may offer various products with differing benefits and costs. Some health plans and employers provide online tools and calculators to assist individuals in selecting the most suitable plan.
Before enrolling in a health plan, it’s essential to inquire about the following:
– Monthly premium: This is the amount paid monthly by you or your employer.
– Yearly deductible: The sum you must pay annually before the plan starts covering costs.
– Separate deductibles for different services, such as prescriptions and other medical services.
– Costs or services that contribute to the deductible, like co-pays or co-insurance for hospital visits or surgeries.
– Yearly out-of-pocket maximum: The total amount you’re required to pay each year for most covered services, excluding premiums. There may be individual and family out-of-pocket maximums. Once reached, most out-of-pocket costs are no longer required for the remainder of the year.
– Co-pays or co-insurance for various services, such as office visits, prescription drugs, hospital stays, emergency room visits, or urgent care visits.
– Existence of dollar limits on coverage: In 2014, yearly benefit limits were abolished for most services, but some non-essential benefits may still be restricted. Additionally, lifetime dollar limits on benefits are typically prohibited by most health plans.
– Situations where significant portions or entire bills may need to be paid, such as seeking specialist care without a referral, receiving care from out-of-network providers, or obtaining services not included in the benefit package.
– Awareness of premium rates and understanding rate increases, as part of promoting transparency and accountability within the health care industry, as supported by the DMHC.
Quality of Healthcare
The standard of care varies depending on the health plan. To aid in comparing the quality of care among HMOs and medical groups in California, you can utilize the HMO Report Card. This resource furnishes details on the quality of various healthcare services and includes patient ratings on their care experience.
Health care forms
- Premium Assistance Subsidy (FTB 3849) – This subsidy, soon to be available, provides financial assistance for premiums.
- Health Coverage Exemptions and Individual Shared Responsibility Penalty (FTB 3853) – This document addresses exemptions from health coverage requirements and the penalty for not having coverage.
- California Health Insurance Marketplace Statement (FTB 3895) – This statement pertains to information regarding health insurance obtained through the California Health Insurance Marketplace.
Make sure you have health care coverage
To evade incurring penalties, it’s necessary to maintain minimum essential coverage (MEC) for every month throughout the year for:
– Yourself
– Your spouse or domestic partner
– Your dependents
A significant number of individuals already possess qualifying health insurance coverage through:
– Employer-sponsored plans
– Coverage acquired through Covered California or directly from insurance providers
– Medicare (Part A and C)
– The majority of Medicaid plans
Special enrollment period
During Covered California’s special enrollment period, which typically spans from November to January, individuals have the opportunity to enroll in health care coverage. The eligibility criteria during this period are akin to those observed during the annual open-enrollment period.
Exemptions
You might be eligible for an exemption to circumvent the penalty. The majority of exemptions can be asserted on your state income tax filing.
Read more here Health Insurance Coverage In New York City
CONCLUSION
California’s new state law mandates health insurance for all legal citizens of the state. Effective January 1, 2020, this legislation requires Californians to have health insurance from that year onwards. Proposed by state officials, this law reinstates the requirement that uninsured Californians will face penalties in the subsequent year, 2021, if they fail to obtain health insurance. The penalties could amount to $695 for a single uninsured California adult or 2.5% of their gross income, while a family of four could face a minimum penalty of $2,085. This law, essentially a revision of the Affordable Care Act, is expected to generate approximately $317 million in state revenue.
The aim of this law is to decrease the number of uninsured individuals and families in California, thereby promoting a healthier state. Although not directly linked, there is speculation that it may also assist low-income individuals and undocumented immigrants living in California in affording health coverage. Consequently, there is opposition to the new law, with some considering it unfair. For instance, a leader of a student group supportive of Trump criticized California for prioritizing healthcare for undocumented immigrants, expressing the belief that it puts them ahead of citizens.
There are numerous reasons why maintaining health insurance is crucial. A comprehensive health insurance policy can cover a majority, if not all, medical and hospital expenses in the event of injury, illness, or the need for surgery. Additionally, it can help mitigate costs for preventive care such as screenings, check-ups, and vaccines, which are vital for long-term health maintenance.
Having a comprehensive health insurance plan can shield you from bearing substantial expenses and potential debt. Some types of health insurance cover qualifying costs upfront, while others offer reimbursement. In either case, having insurance can result in significant savings in the event of an expensive emergency, accident, or unexpected diagnosis.
Having the assurance that you or your loved ones won’t face financial ruin due to necessary medical care provides invaluable peace of mind that only a reliable health insurance plan can offer.