Are you a California resident? You may have heard that some changes have affected health insurance in California, specifically centered around tax penalties.
Now, you may have to pay a California health insurance penalty if you don’t have coverage for part or all of the year. Before you panic, read through the changes to California health insurance over recent years to determine whether it may affect you.
Changes to California health insurance in recent years
There have been a few changes to California health insurance since 2024 to keep in mind:
- Continuation of Affordable Coverage: Covered California continues to offer a range of affordable health insurance plans, ensuring Californians have access to comprehensive coverage options tailored to their needs.
- Enhanced Eligibility for Financial Assistance: Updates to eligibility criteria for financial assistance, such as Premium Tax Credits and Cost-Sharing Reductions, have been implemented, making healthcare more affordable for individuals and families across the state.
- Improved Enrollment Processes: Efforts have been made to streamline the enrollment process, emphasizing the importance of reviewing and updating personal information to ensure accurate coverage and eligibility for financial assistance.
- Increased Awareness of Open Enrollment: There is a renewed focus on educating Californians about open enrollment periods and deadlines, empowering individuals to make informed decisions about enrolling in or modifying their health insurance coverage.
- Expanded Coverage Options: Additional coverage options may now be available, catering to diverse healthcare needs and preferences, further enhancing access to quality healthcare services for residents of California.
Restoration of the California individual health insurance mandate
Since 2014, the federal Affordable Care Act (ACA) has required individual taxpayers and their dependents to maintain Minimum Essential Coverage (MEC,) or pay a federal tax penalty. However, Congress removed the federal non-compliance tax penalty beginning in 2019 when it revised the tax code in 2017. As a result, California saw an increase in health insurance premiums and a decrease in families with health insurance coverage in 2019.
California joined 4 other states – Massachusetts, New Jersey, Rhode Island, Vermont – and Washington, D.C. in putting state individual mandate laws into place. California health insurance law requires nearly all California residents to maintain MEC –health insurance coverage – for themselves and their dependents.
According to Covered California, California’s health insurance exchange, restoring the individual mandate for California is a factor in driving premiums lower.
However, Californians who can afford health insurance but choose not to purchase coverage may be subjected to a tax penalty. The penalty is applied when they prepare their annual state tax filings.
Reinstatement of the California health insurance penalty
The California health insurance penalty, also known as the individual mandate, was reinstated as of 2020. Following the removal of the federal tax penalty for non-compliance with the Affordable Care Act’s individual mandate in 2019, California took steps to implement its own state-level mandate. This mandate requires nearly all California residents to maintain Minimum Essential Coverage (MEC) for themselves and their dependents. Californians who can afford health insurance but choose not to purchase coverage may be subject to a tax penalty when they prepare their annual state tax filings. The reinstatement of the California health insurance penalty aims to encourage broader participation in health insurance coverage, ultimately contributing to a healthier population and more stable insurance markets in the state.
Tax subsidy program
Under California health insurance law, California rolled out a new tax subsidy program in 2020. The tax subsidy program serves to help lower the cost of health insurance for low and middle-income Californians.
Previously, those who made above 400% of the federal poverty line (FPL) were not eligible for premium tax credits. In 2024, those who make between 100 to 400% of the FPL are eligible for premium tax credits that lower your monthly premium for a Marketplace health insurance plan.
This program is meant to limit how much a Californian will pay for their health insurance premium as a percentage of their income.
Changes to out-of-pocket maximums
One of the biggest changes in health insurance in California involves out-of-pocket maximums in 2022.
The out-of-pocket maximum refers to the maximum amount of money that someone will have to pay for their health services out of pocket. This includes co-Insurance, deductibles, and co-pays. After this amount is met, the health insurance provider must pay 100 percent of the costs for covered benefits.
In 2022, the greatest out-of-pocket limit is $8,700 for an individual or $17,400 for a family.
Overview of the California Health Insurance Penalty
What is the penalty for not having health insurance in California?
There is a California penalty for not having health insurance. If you live in California and you do not have the right level of health insurance, you may be required to pay a penalty on your taxes. In general, the penalty for not having health insurance in California is either 2.5 percent of the household’s annual income or $800 per adult and $400 per child, whichever of these two numbers is greater.
It is also important to note that California plans on raising these penalties to keep up with inflation.
History of the health insurance penalty in California
The history of the health insurance penalty in California reflects significant shifts in healthcare policy over the years. Initially, the penalty was tied to the federal Affordable Care Act (ACA), which required individual taxpayers and their dependents to maintain Minimum Essential Coverage (MEC) or face a federal tax penalty. However, in 2019, Congress removed the federal penalty as part of a broader revision of the tax code.
In response, California, along with several other states, took action to implement its own individual mandate, reinstating the penalty for non-compliance with health insurance coverage requirements. This move aimed to ensure that nearly all California residents maintain health insurance coverage for themselves and their dependents.
Over time, the penalty has evolved to align with changing healthcare policies and priorities. The state has continued to refine its approach to incentivize broader participation in health insurance coverage while also addressing affordability concerns. The history of the health insurance penalty in California underscores the state’s commitment to promoting access to healthcare and fostering a healthier population.
Who is subject to the California health insurance penalty?
The California health insurance penalty applies to nearly all California residents who do not maintain Minimum Essential Coverage (MEC) for themselves and their dependents. This includes individuals who are not covered by employer-sponsored insurance, government programs like Medicare or Medicaid, or other qualifying healthcare coverage options. Essentially, anyone who can afford health insurance but chooses not to purchase coverage may be subject to the penalty when they prepare their annual state tax filings. The penalty is intended to incentivize broader participation in health insurance coverage, ensuring that more individuals and families have access to essential healthcare services.
How penalties are assessed
The penalties for not maintaining Minimum Essential Coverage (MEC) in California are assessed based on income and household size. The calculation methods for determining the penalty amount vary depending on these factors. Here’s a detailed breakdown:
- Percentage of Income Method: The penalty is calculated as a percentage of household income above the filing threshold. In California, the penalty is 2.5% of household income above the tax filing threshold or $695 per adult and $347.50 per child, up to a maximum of $2,085 per family, whichever is greater.
- Flat Dollar Amount Method: Alternatively, the penalty can be assessed as a flat dollar amount per uninsured individual in the household. For example, if the household income is below a certain threshold, the penalty may be $695 per uninsured adult and $347.50 per uninsured child, up to a maximum of $2,085 per family.
To illustrate how penalties are assessed, consider the following example:
- A family of four with a household income of $60,000 files their taxes in California.
- Since their income is above the tax filing threshold, they are subject to the penalty for not having health insurance.
- Using the Percentage of Income Method, the penalty would be 2.5% of their income above the filing threshold.
- If their income is $10,000 above the filing threshold, the penalty would be $250 ($10,000 x 0.025).
- Alternatively, using the Flat Dollar Amount Method, the penalty would be $695 per uninsured adult and $347.50 per uninsured child, up to a maximum of $2,085 per family, whichever is greater.
This example demonstrates how penalties for not maintaining health insurance coverage are calculated based on income and household size in California.
Exemptions from the California health insurance mandate
Even though you are required to carry health insurance if you live in California, this law has a few exemptions. They include:
Covered California Exemptions
There are a few examples where you may qualify for an exemption from the California health insurance mandate because the state covers it. For example, if you were uninsured for less than three months of the year, or if the least expensive health insurance plans available were greater than 8.27 percent of your household income, then you may qualify for an exemption. Or, if you do not have to file a tax return because your income is too low, you may not be required to carry health insurance.
Some of the other exemptions in California include being a member of a health sharing ministry, being incarcerated, or living abroad for at least 330 days out of the past year.
Hardship Exemptions
You may also qualify for hardship exemptions. The most common examples of hardship exemptions include being homeless, facing eviction, or receiving utility shut-off notices.
Other examples of hardship exemptions include being impacted by domestic violence, recently experiencing the loss of a family member, or recently experiencing a natural disaster. In addition, if you had to file bankruptcy, incur substantial debt, or were denied coverage for Medicaid, you may qualify for a hardship exemption.
FAQs about the California health insurance penalty
Is there a federal penalty for not having health insurance?
No, there is no longer a federal penalty as of 2018.
In addition to the California health insurance penalty, several other states require people to carry health insurance by law. They include Massachusetts, Rhode Island, Vermont, New Jersey, and in Washington DC. If you do not have minimum essential coverage and decide to move to one of these states, you may have to pay a state penalty.
How can I avoid the California health insurance penalty?
Your circ*mstances can change unexpectedly. This is particularly true in recent years, as Californians deal with the impact of the pandemic and wildfires. For your health and financial well-being, you need health insurance to help cover the high cost of medical care and to avoid the California health insurance penalty come tax time.
Here are some insurance options to consider:
- ACA plans in the state health insurance exchange
- Individual/Family health insurance offered by private insurers through the exchange
How do I report my health care coverage?
When you file taxes, you are required to report your health care coverage. It is important to make sure that you do so accurately to avoid having to pay a penalty for no health insurance in California.
Just as you have to report your health care coverage on your federal tax return, you also have to report your health care coverage on your state tax return if you live in California. On your state tax return, there is a designated area where you are supposed to fill in the type of healthcare coverage you have and the dates during which you have had healthcare coverage this year.
How do I know if I qualify for a subsidy?
Typically, you qualify for a subsidy to offset the cost of California’s health insurance mandate if you earn between 100% and 600% of the FPL. If you make less than 100% of the FPL, you may qualify for Medi-Cal. If you make more than 600% of the FPL, you probably aren’t eligible for government subsidies to help pay your health insurance costs. To learn more, you can read All About the Covered California Income Limits.
Subsidies are based on the estimated amount of income that you expect to make during the upcoming coverage year. To find out if you qualify for subsidies under the new California subsidy program, you can use eHealth’s subsidy calculator while shopping for health insurance. Visit our individual and family health insurance page, enter your zip code, complete a quick questionnaire and click “See if I Qualify”. The eHealth calculator will estimate and report to you if the government could help lower your costs through subsidies.
Keep in mind that you should report changes in income throughout the year. This way if you’ve received a subsidy and experience an increase in income that disqualifies you for the subsidy, you won’t have to pay the unqualified amount back at the end of the year. Conversely, if you believe that you experienced a change in income that could qualify you for a subsidy, make sure to report it so that you don’t miss out on savings.
What is minimum essential coverage (MEC)?
Minimum essential coverage refers to an insurance plan that meets the requirements that have been put in place by the Affordable Care Act.
You can find insurance plans that meet this requirement in several places. In general, plans offered by your employer, plans offered on the health insurance marketplace, Medicare plans, and Medicaid plans all meet the requirement of MEC.
If you have questions about whether a specific plan meets these requirements, our licensed insurance agents can help.
Find healthcare coverage you can afford
Many Californians find themselves without healthcare coverage because of financial challenges. Fortunately, eHealth can help you find affordable health insurance in California.
Let eHealth help you find the plan that works for you! Get an instant quote for health insurance plans available where you live and find out if you qualify for a subsidy. If you need more help, eHealth’s team of experienced health insurance agents are ready to help you find the right plan both online and over the phone. Get started finding your health insurance plan today!
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.
