California Employment Law: Individual Mandate

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Published: 06/23/20 11:11 AM

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California Employment Law: Individual Mandate

This article was published on: 06/23/20 11:11 AM

Beginning in 2020, California imposes a state individual mandate that requires individuals in California to maintain acceptable health coverage or pay a penalty. The California law largely mirrors the federal individual mandate requirement under the Affordable Care Act (ACA) that was effectively eliminated, beginning in 2019.

California was among the first states to enact its own health insurance individual mandate. Individuals in California should become familiar with the state individual mandate requirement before it takes effect in 2020 and monitor any future developments.

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This guide is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. It is provided for general informational purposes only. Readers should contact legal counsel for legal advice.

© 2019 All rights reserved. BR 12/19

Individual Mandate Overview

California’s individual mandate requires most individuals in the state (and their family members) to be covered under minimum essential coverage for each month of the year, beginning in 2020. Individuals that don’t obtain acceptable health insurance coverage will be penalized

Minimum Essential Coverage

For purposes of the California individual mandate, minimum essential coverage (MEC) generally has the same definition as under the ACA. MEC includes coverage under:

  • A government-sponsored program, such as coverage under the Medicare or Medicaid programs, the Children’s Health Insurance Program (CHIP), TRICARE and certain types of veterans’ health coverage;
  • An eligible employer-sponsored plan (including a self-funded plan, COBRA and retiree coverage), defined as any plan offered by an employer to an employee which is a governmental plan or a plan or coverage offered in the small or large group market within a state;
  • A health plan purchased in the individual market; or
  • A grandfathered health plan.

The University of California Student Health Insurance Plan and the University of California Voluntary Dependent Plan also constitute MEC for this purpose.

The Penalty Amount

California’s individual mandate penalty is calculated in the same manner as the ACA’s individual mandate. The penalty is the greater of two amounts—the flat dollar amount ($695) or the percentage of income amount (2.5% of income). For purposes of calculating the penalty, income is the taxpayer’s household income for the taxable year over the state income tax filing threshold for the taxable year.

Families will pay half the penalty amount for children, up to a family cap of three times the annual flat dollar amount. Also, the penalty is capped at the California state average of the annual bronze plan premium.

Individual Mandate: Affected Individuals

The requirement to maintain MEC applies to individuals of all ages (including children), unless that individual falls within a specific exception or is exempt. An individual is treated as having coverage for a month if he or she has coverage for any one day of that month.

The following categories of individuals are exempt from the California individual mandate:

  • Individuals who cannot afford coverage;
  • Religious conscience objectors;
  • Members of a health care sharing ministry;
  • Incarcerated individuals;
  • Individuals not lawfully present in the United States;
  • Members of an Indian tribe;
  • Nonresident taxpayers;
  • Individuals enrolled in limited or restricted scope coverage under the Medi-Cal program (or of a substantially similar program).

An individual who is eligible for an exemption for any one day of a month is treated as exempt for the entire month.

Individual Mandate: Reporting Requirement

To help administer the individual mandate, California law imposes a reporting requirement on every entity that provides MEC to an individual during a calendar year, similar to the ACA’s reporting requirement under Internal Revenue Code Section 6055. This reporting requirement applies to:

  • Employers or other sponsors of employment-based health plans, for employment-based MEC;
  • The State Department of Health Care Services and county welfare departments, for MEC under a state program;
  • Carriers licensed or otherwise authorized to offer health coverage, for MEC they provide that is not described above (including catastrophic plan coverage);
  • The Exchange, for individual health plans (except catastrophic plans) on the Exchange; and
  • Any other provider of MEC (including the University of California, for coverage under a student health insurance program).

Under this reporting requirement, entities that provide MEC will be required to provide the following information to covered individuals and the California Franchise Tax Board by March 31 of each year:

  • The name, address and Social Security number (SSN) or taxpayer identification number (TIN) of the primary insured, and the name and SSN or TIN of each other individual covered under the policy;
  • The dates during which those individuals were covered under MEC during the calendar year; and
  • Any other information the Franchise Tax Board may require.

The new law specifically provides that the California reporting requirement may be satisfied by providing the same information that is currently reported under the federal Section 6055 reporting requirement.

Health Insurance Subsidies

Until Jan. 1, 2023, the new law also creates Individual Market Assistance, which provides health insurance premium assistance subsidies to California residents with household incomes at or below 600% of the federal poverty level. Advance payments of these subsidies will be available at the time an individual purchases coverage through the Exchange. These advance payments will then be reconciled at the end of each year, based on the individual’s actual household income, family size and other factors. Future regulations are expected to provide more detail on these subsidies.


California Franchise Tax Board

2019-2020 State Budget Legislation

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