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California health insurance penalties can cost more than coverage

In summary

California is one of four states that levies a tax penalty on uninsured households. Many people paying the fines are eligible for heavily subsidized health insurance through Covered California.

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Californians without health insurance are again facing tax penalties this year, and some may pay more in fines than they’d spend buying coverage, state officials say.

That’s because some of them may qualify for heavily subsidized insurance and don’t know it. California’s insurance marketplace, Covered California, offers health insurance for as little as $10 a month, with rates depending on household income and size, as well as location and age.

“There are a lot of people who are paying more for the penalty by a large margin, in some cases, than they would pay to have the peace of mind of coverage. We should all take that to heart as a call to action because that should not be happening,” said Jessica Altman, executive director of Covered California, the state’s insurance marketplace, during her board’s February meeting.

During the 2022 tax season, the latest year for which data is available, more than 271,000 households paid fines for lacking health insurance the year prior, according to the Franchise Tax Board. All together those Californians paid the state about $312 million.

The average penalty per household that year? $1,149.

California is one of four states, plus the District of Columbia, that penalizes residents for not having health insurance. This tax season, Californians are seeing health insurance penalties of up to $850 per adult and $425 per child.

Who pays the California health insurance penalty?

Lower-income households bear the brunt of the state’s insurance penalty. About 60% of those who paid the fines earned $50,000 or less.

About 600,000 uninsured Californians are eligible for subsidized insurance through Covered California, according to estimates by the UCLA Health Policy Research Center cited by the agency.

Of those, 260,000 could sign up for a health plan for less than $10 a month or snag a high-deductible plan with free monthly premiums, Covered California spokesperson Jagdip Dhillon said in an email.

For example, a family of four in Los Angeles earning $50,000 could qualify for a standard plan for $28 a month or a high deductible plan with no monthly premiums, according to Covered California’s quote tool. Meanwhile a single person making the same amount in the same city would have to pay about $295 a month for a standard plan.

People may be going without insurance because it is still unaffordable for them, or because they’re unaware of the generous subsidies, said Alicia Emanuel, a staff attorney and advocate with the National Health Law Program.

“Californians continue to really struggle between having to pay for health care and thinking about basic needs,” Emanuel said.

“As good a job as Covered California does in all of their marketing and outreach efforts, I think that health care continues to be a scary topic for people. It’s complicated. I think that means we have to work harder collectively to get the word out.”

Privacy law limits direct outreach

While the state may have an idea of ​​who is going without insurance and who may qualify for a low-cost plan, targeting those individuals is not as easy as having an insurance agent call them. Covered California officials said that by state law, the agency cannot proactively share information about consumers with enrollment counselors. The agency instead sends information to individuals so that they can then seek help on their own.

Not all Californians who lack insurance are penalized. There are exemptions for reasons such as living only part of the year in California, reporting a hardship or going without coverage less than three months. People can also seek an exemption if health coverage is considered unaffordable, if that coverage would cost more than 8.17% of their household income.

Undocumented immigrants are also exempt from the insurance mandate because the federal Affordable Care Act bars them from purchasing health coverage on states’ insurance marketplaces. California allows low-income undocumented people into the Medi-Cal program, but they are not penalized if they don’t sign up.

The open enrollment period to buy a plan through Covered California is now closed, but people can still sign up if they have a life-changing event, such as having a child, getting married or if they lose a job.

California’s subsidized health care coverage

Insurance plans bought through the marketplace are heavily subsidized for thousands of Californians because of federal aid provided first by the American Rescue Plan in 2021 and continued by the Inflation Reduction Act in 2022. Extra federal funding means Californians can receive enhanced subsidies for health insurance through 2025 .

Experts say the extra help makes a difference. Last month, Covered California announced that a record number of people — close to 1.8 million — had selected a plan through the marketplace for 2024, that included about 300,000 new enrollees. Emanuel said he would expect this to translate into fewer households paying penalties next year.

In 2019, Congress and the Trump administration eliminated a provision in the 2010 Affordable Care Act that required people to buy insurance or pay a tax penalty. Soon after, Gov. Gavin Newsom signed a law requiring Californians to buy insurance and institute a penalty for those who go uninsured..

The health mandate has been regarded as unpopular but effective in nudging people to get covered.

In 2022, California reached an uninsured rate of 6.2% in people under 65 — a historic low. Experts and state officials say that as California reduces its number of uninsured people, those remaining will simply be the toughest to reach.

Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.

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