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August 1, 2019

Individual Health Insurance Mandated in California and Rhode Island

A handful of states are enacting laws requiring their residents to maintain individual health coverage, or pay a state tax penalty.  California and Rhode Island now join the District of Columbia, Massachusetts, New Jersey and Vermont by enacting laws mirroring the concepts of the individual shared responsibility provisions of the Affordable Care Act (ACA).  Below is a summary of these new laws in California and Rhode Island.

California Individual Healthcare Mandate

Senate Bill 78, enacted on June 27, 2019, imposes a penalty for individuals who fail to maintain health coverage, as well as imposes a reporting and disclosure obligation upon entities providing minimum essential coverage (MEC).  The law takes effect on January 1, 2020. 

Individual shared responsibility requirement

Beginning January 1, 2020, California residents and their dependents (including spouse or domestic partner, and tax dependents) are required to obtain and maintain minimum essential coverage (MEC) on a monthly basis, unless they qualify for an exemption.  Individuals exempt from the individual mandate include:

  • Those who have a hardship or religious conscience exemption certificate;
  • Health care sharing ministry members;
  • Incarcerated individuals;
  • Members of an Indian tribe;
  • Non-U.S. citizens or nationals who are not lawfully present in the U.S.; U.S. citizens or residents living abroad; and bona fide residents of another state or U.S. possession (Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands); and
  • Individuals enrolled in limited or restricted coverage under Medi-Cal or other state health care services program.

For purposes of this law, minimum essential coverage (MEC) includes coverage under:

  • Insured and self-funded employer-sponsored group health plans;
  • Individual and student health insurance policies; and
  • Government-sponsored programs such as Medicare Parts A or C, federal and state (Medi-Cal) Medicaid, and CHIP, TRICARE, Veterans and Peace Corps volunteer programs.

MEC does not include coverages that provides only limited, excepted or supplemental benefits.

Amount of penalty.  The law includes a complicated formula for determining state tax penalties for failure to maintain MEC.  The initial amount is similar to the penalty imposed under the ACA (before it was reduced to zero beginning January 1, 2019).

The penalty is calculated based on the greater of 2.5% of family income, or $695 per adult, $347.50 per child (family maximum of $2,085).  These amounts are subject to indexing by the California Franchise Tax Board (FTB).   The penalty may be further adjusted based on the cost of premium for the bronze plan through the state insurance marketplace, known as Covered California.  

Penalties are waived if the individual’s required contribution, determined annually, for coverage for the month exceeds 8.3% of the individual’s household income for the tax year; or the individual does not have enough income to trigger a state return filing requirement for the tax year.  Further, under a short coverage gap exception, a penalty will not be imposed if the last day of the month occurred during a period in which the individual did not maintain MEC for a continuous period of three months or less.

The law also creates an Individual Market Assistance program which authorizes Covered California to provide financial assistance to California residents whose household income falls below 600% of the federal poverty level, including advanced premium assistance subsidies.  Notably, the income level is 200% higher than the income standard under the ACA.

Reporting and Disclosure Obligations.  The law requires entities providing MEC to individuals to file an information return to the California Franchise Tax Board (FTB) by March 31 each year.  Entities required to report include employer/plan sponsors, licensed insurers, state health and welfare departments, and Covered California.  The reporting form is to be developed by the FTB and would require the following information:

  1. Name, address, and taxpayer ID number of all covered individuals under the policy;
  2. Dates of MEC during the calendar year; and
  3. Any other information required by the FTB.

This type of information report is similar to that which is currently required under IRC Section 6055 of the ACA on the IRS Forms 1095-A, 1095-B and 1095-C.  Unless the content for the IRS forms significantly change, these IRS forms could be used for FTB reporting purposes. 

These entities are also required to provide written statements to covered individuals on an annual basis by January 31 as proof of maintaining MEC.  The FTB will develop a model disclosure statements that can be used.

Rhode Island Individual Health Insurance Mandate

On July 5, 2019, Rhode Island’s Governor Gina Raimondo signed a state-wide budget bill, a section of which sets forth the provisions of an individual health insurance mandate (Article 11 Relating to Healthcare Market Stability, Chapter 88 of 2019 Session Laws, Appropriations in support of the state for fiscal year 2020). 

The law requires each Rhode Island resident to maintain minimum essential coverage (MEC) for him/herself and all eligible dependents for each month beginning on and after January 1, 2020, or qualify for an exemption such as a hardship exemption, an exemption for religious reasons, or the household income falls below the state tax filing threshold.

Amount of penalties.  Failure to maintain MEC will result in a state excise tax penalty that would become due at the point the individual files his/her state income tax return. The state excise tax penalty mirrors the federal penalty imposed under the ACA (before it was reduced to zero beginning January 1, 2019).  The penalty, subject to inflationary adjustment is calculated as the greater of $695 per adult, and $347 per child; or, 2.5% of household earnings, capped at the statewide average premium for bronze-level plans offered through Rhode Island’s marketplace, known as HealthSourceRI.

Reporting and Disclosure Obligations.  Entities who provide MEC to individuals during a calendar year are required to file an information form developed by the state’s Department of Revenue.  Affected entities include employer/plan sponsors, licensed insurers, and state health and welfare departments. The reporting form will require the following information:

  1. Name, address, and taxpayer ID number of all covered individuals under the policy;
  2. Dates of MEC during the calendar year; and
  3. Any other information required by the state’s tax administrator.

This type of information report is similar to that which is currently required under IRC Section 6055 of the ACA on the IRS Forms 1095-A, 1095-B and 1095-C.  If, for any reason, these forms are no longer required, the state will develop appropriate forms.

These entities are also required to provide written statements to covered individuals on an annual basis by January 31 as proof of maintaining MEC.  The law allows third parties to accomplish the reporting and disclosure obligations on behalf of the applicable entity.

 

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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