California Health Insurance Penalty in 2020: What You Should Know

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California shook things up for its residents in 2020, at least when it comes to health insurance. Everyone must have qualifying health insurance coverage or qualify for an exemption as of Jan. 1, 2020. Otherwise, they’ll face a tax penalty.

The reasoning behind the change is reportedly that insurance coverage plummeted among residents when Congress eliminated the federal tax penalty provided for under the Affordable Care Act or ACA beginning in 2019. The California mandate is intended to replace that incentive to carry insurance.

Minimum Essential Coverage

You might well already have qualifying health insurance for the mandate if you’re presently covered by your own personal plan or one provided through your employer. Call your provider to find out if it meets California's “minimum essential coverage” or “MEC” requirements. The 2020 mandate requires that everyone cover at least this much insurance, and it’s the same requirement as exists under the ACA but without the imposed tax penalty as of 2019.

Minimum essential coverage can include “catastrophic” plans. These are inexpensive, worst-case-scenario plans, and they’re available to California consumers under the age of 30. Residents age 30 and older must apply for this type of coverage through Covered California, the state’s health insurance marketplace, and this means qualifying through general hardship or for affordability reasons.

Another option is to reach out to Medi-Cal to find out if you qualify for low- or no-cost coverage. Medicare, CHIP and TRICARE also meet MEC requirements.

Carrier Special Enrollment

Now, the bad news. You only had until Jan. 31, 2020 to enroll for coverage during Covered California’s open enrollment period, which ran from Oct. 15, 2019 through the end of January. But don’t resign yourself to paying that penalty just yet. Some Small Group Health Insurance carriers have extended their open enrollment periods in response to the 2020 state mandate. Call around and ask for carrier special enrollment provisions.

Individual Mandate Penalties

How much you’ll have to pay if you don’t have coverage and don’t qualify for an exemption is subject to a somewhat complicated formula – it's not one size fits all. The Individual Shared Responsibility Payment is a minimum of $695 per adult, so you’ll pay at least $1,390 if you're married and neither of you is insured, or if you live with a domestic partner. You’ll pay on behalf of your dependent children, too, if they’re not covered by a policy – $347.50 per child, or half the adult penalty.

But it could be more if 2.5% of your gross household income over the filing threshold exceeds these numbers. The filing threshold relates to how much income you can earn before you have to file a California state tax return, and it depends on how many dependents you have and your tax filing status. You’ll have to pay whichever amount is more – this calculation or the flat fee.

The penalty is due and payable when you file your California income tax return.

Exemptions You Can Claim on Your Return

California’s mandate isn’t quite Draconian, although it might seem so at first glance. The state offers several exemptions from carrying coverage, but this can get a bit complicated, too. Some are simply a matter of checking a box on your state income tax return. Others require that you apply for them with Covered California.

Those you can claim on your return include that you don’t actually have to file a return because your income was less than the must-file threshold for your filing status. Coverage lapses of three months or less are forgiven, and you’re exempt if the cost of the cheapest Covered California bronze plan or the plan available through your employer is more than 8.24% of the income reported on your return.

Additionally, you’re exempt if you’re filing a nonresident return – you actually live somewhere other than California even and only work or have income-producing assets there – or if you’re incarcerated, an American Indian, an Alaska Native, or a member of a healthcare sharing ministry.

Exemptions You Must Apply For

You might also be exempt from the mandate if you object to it for religious reasons, or if paying for insurance is out of the question for you because of affordability reasons or general hardship. You must request these exemptions through Covered California, however, and the marketplace will review your situation and either approve you or deny your claim.

You’ll receive an Exemption Certificate Number or ECN if you’re approved, and you can then buy a catastrophic plan if you’re over age 30. Covered California began accepting applications in January 2020.

Reporting of Coverage

There’s no need to fret with all this when you file your 2019 California state tax return in 2020. The mandate doesn’t kick in until you file your 2020 tax return, which won’t be until 2021.

And that’s a good thing, because the California Franchise Tax Board hadn’t quite finalized reporting requirements as of late 2019. Rumor has it, however, that they’ll be similar to filing IRS Form 1095 with your federal return.

Financial Help Is Available

California isn’t going to wrestle your rent or mortgage money from your fingertips. The penalties apply to families who can – at least theoretically – afford coverage but don’t want to pay for it. The state also offers financial help in the form of insurance premium tax credits to qualifying individuals and families through Covered California, those who honestly can't afford coverage. Qualifying factors include your age, income, the area of California in which you live and your household size.

Your household income must be between 400 percent and 600 percent of the federal poverty level. The subsidies aren’t off-the-charts generous, but they’re still better than no help at all, forcing you to come out of pocket for your entire premiums. A family of four can earn up to about $150,000 a year under these guidelines, first implemented in 2020 along with the mandate. These income parameters are what you expect to earn in 2020, not necessarily what you earned in 2019.

You can still qualify for financial help from the state even if you’re already receiving federal health coverage assistance, but you won’t qualify if your employer has offered you affordable coverage and you’ve opted to go the Covered California route instead. And you can apply mid-year if your financial circumstances change so you’re eligible now even if you weren’t before. Just be sure to pull the plug if your income unexpectedly increases or you’ll have to repay the subsidy to the state.