California's Individual Health Insurance Penalty: How To Avoid It

When the Affordable Care Act, sometimes called Obamacare, passed the United States Congress in 2010, it included an individual mandate requiring everyone in the United States to have health insurance coverage or pay a federal income tax penalty. The purpose was to lower premiums while ensuring that there was enough money available to cover the costs of the claims filed.

The Tax Cuts and Jobs Act of 2017 discontinued the ACA's individual mandate. However, California recently reinstated a statewide individual mandate to provide subsidies to help people who do not qualify for federal assistance through the ACA to obtain coverage.

The change means that, as of 2020, you could pay a California health insurance penalty on your state income taxes if you do not have coverage. However, you do have some options to avoid the penalty.

Potential Penalties

The individual mandate applies to all Californians, even children. This means that if you are a parent and neither you nor your children have qualifying coverage in 2020, you will owe a penalty for yourself, your spouse if applicable, and each of your children. The penalty for each adult is $695, while the penalty for children is half that amount at $347.50. If you owe a penalty, the California Franchise Tax Board will apply it to your state tax return upon filing.

Obtaining insurance coverage for yourself and your family is the best way to avoid paying the California health insurance penalty. Depending on your income level, you may qualify for a subsidy to help defray the cost. In 2020, you may be eligible for a subsidy if your annual income is between 100% and 600% of the federal poverty line. In the past, you were not eligible if your income exceeded 400% of the FPL.

Another option for obtaining coverage may be Medi-Cal. You may qualify if you make less than 100% of the FPL and therefore do not qualify for a subsidy.

California Health Insurance Penalty Exemptions

There are several exemptions to the health insurance penalty. Those for whom it is not practical or desirable to obtain coverage may qualify.

Exemptions are processed either through Covered California or the Franchise Tax Board. The latter include the following:

• Enrollment in restricted- or limited-scope Medi-Cal or a similar program
• Incarceration
• Membership in a health care-sharing ministry
• Living abroad or in another state
• Income below the state filing threshold

The exemptions that Covered California processes fall into three categories.

1. General Hardship - Examples include a natural or man-made disaster, domestic violence, homelessness or eviction, and bankruptcy. If you experience an unspecified hardship, it may be considered on a case-by-case basis.
2. Affordability Hardship - Based on your projected income, the state may determine that health coverage is unaffordable for you. This determination may be made on the basis of either individual or household income, depending on the circumstances.
3. Religious Conscience - The state may grant you an exemption if you are part of a sect relying solely on religious methods of healing. You may also qualify for an exemption if your religious sect or division opposes acceptance of either public or private insurance benefits.

For more information about avoiding the California health insurance penalty by obtaining coverage, contact us at Sackett & Associates Insurance Services by calling 707-823-3689.