By: HUB’s EB Compliance Team

With two recent bills - California SB 78 and SB 104 - California has made several major modifications to the operation of health insurance within the State. Specifically, the combined bills include:

  • Expansion of Premium Tax Credits (PTC): California is the first state in the nation to expand the availability of PTC to individuals and families with household incomes up to 600% of the Federal Poverty Level (the federal limit is 400%). This only applies to individuals that purchase coverage from the state exchange (“Covered CA”). Effective January 1, 2020 and until 2023, California residents with household incomes for a single individual of $72,840, and families of four with incomes up to $150,600, will now qualify for PTC when they purchase coverage from Covered CA. The State is setting aside $295M over the next three years to fund this expansion.
  • New Individual Mandate: Effective January 1, 2020, California residents will become subject to an individual mandate. The mandate resembles the now defunct ACA individual mandate. As of January 1, 2020, every resident of California will be required to be enrolled in minimum essential coverage (“MEC”) or pay a penalty. A rationale for this is to safeguard the individual market and the viability of Covered CA, as enrollments have dropped due to the repeal of the ACA’s individual mandate penalty. The mandate provides for:
    • Penalties: The annual penalty is the greater of: (1) $695 (adjusted based on the Consumer Price Index) per individual, up to a maximum of 3 or (2) 2.5% of household income. Additionally, if the average premium for an individual bronze level of health plan is less, then the penalty will be equal to that amount instead. However, that is not expected to be the case. The penalty is assessed monthly; the monthly amount is 1/12th of the annual penalty.
      • The penalty will apply to all uninsured members of a household that are reported in the individual’s tax return, including registered domestic partners (if filing a joint tax return).
      • There is a “three-month grace period” from a reprieve from the penalty (i.e., an individual can go without coverage for up to three months in a calendar year and will be exempt from a penalty).
    • New Employer Reporting Requirements: Employers and other issuers of MEC (carriers, self-funded plans, trusts and others) will be required to provide information to both the policyholder/employee (as already required under the ACA itself) and the State Franchise Tax Board. For the latter purpose, the insurance carrier or self-funded plan can either use a State-sanctioned form or the actual Forms 1095-B/C that it provides to the covered individual. (An employer with only an insured plan does not need to file its Form 1095-C with the state of California.) Whichever specific form the issuer of MEC uses, it must distribute to covered participants no later than January 31 of the year following the reporting year and also submit a copy to the State Franchise Tax Board not later than March 31 of the year following the reporting year. Failure to submit a copy of the return to a covered participant or the CA Franchise Tax Board will subject the employer or carrier to a penalty of $50 per return per covered participant.

California joins Massachusetts and more recently New Jersey in implementing an individual mandate. The state of New Jersey implemented a new individual mandate effective January 1, 2019 requiring employers to report to the state no later than February 15, 2020 (more information here).

  • Establishes a “Healthy California for All Commission”: The commission will, at certain intervals between now and the end of 2021, make recommendations regarding the viability and (possible) creation and funding for a State-operated universal healthcare or single-payer system.
  • Expands Medi-Cal Coverage: Effective immediately, anyone between the ages of 19-25 can potentially (household-income permitting) regardless of his/her citizenship/documentation status can enroll in Medi-Cal.

Takeaways

These changes have a few implications for employers. First, and most obvious, is that self-funded employers will now be required to report to California as well as the federal government. For insured employers, carriers will be providing the information on covered employees to the state of California.

Second, the new premium tax credits and expanded Medi-Cal coverage may lead some employees to opt out of an employer’s plan. However, the new California individual mandate may encourage some employees who previously declined an employer’s coverage to enroll in it.

As the expansion of premium tax credits is based on state law, not federal law (i.e., the ACA), it is unlikely that the expansion will result in ACA employer mandate penalties against employers for employees who receive the California credits, but are making more than 400% of the Federal Poverty Line (the federal limit). However, additional guidance is anticipated that will clarify what impact, if any, this development will have on employers doing business in California.

HUB will continue to monitor the expansion of premium tax credits and the California individual mandate and keep you abreast of any developments. If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.