INSTITUTE FOR HEALTH POLICY AND LEADERSHIP September 2019 Policy At A Glance: Reinstatement of the Individual Mandate and Penalty in In response to the passage of the 2017 Tax Cuts and Jobs Act, which essentially removed the individual mandate penalty, California Legislature took measures to reinstate the individual mandate penalty via Senate Bill (SB) 78. As of July 1, 2019, California is one of five states to reinstate the individual mandate penalty at the state level.

What is Senate Bill 78? Relevant History On June 27, 2019, Governor Gavin Newsom signed California Senate Bill (SB) 78 into law. SB 78 is a voluminous health trailer bill developed to 03/23/10 Patient Protection and (ACA) enacted implement changes to the 2019-20 budget. The purpose of this policy This act establishes the federal brief is to highlight the pivotal role SB 78 serves in reinstating the individual mandate penalty as part of its goal to expand access to quality, individual mandate and penalty in the state of California. To accomplish affordable healthcare. this goal, SB 78 takes a three-pronged approach as follows: 12/22/17 2017 Tax Cuts and Jobs Act enacted This act sets the federal individual 1. Establishes the minimum essential coverage (MEC) individual mandate penalty to $0, essentially mandate requiring a “California resident and any spouse or removing the tax penalty imposed on individuals who fail to meet the dependent of the resident to have minimum essential coverage for minimum essential coverage. 1 .requirements. each month, beginning on and after January 1, 2020.” 01/10/19 Senate Bill (SB) 78 introduced Among other health issues, SB 78 aims 2. Allows exemptions for hardships and religious conscience reasons to reinstate the individual mandate as determined by Covered California (i.e. the California Health penalty in the state of California. 7 Benefit Exchange). In addition, incarcerated individuals, 02/07/19 Assembly Bill (AB) 414 introduced individuals overseas, and individuals who are not citizens or This bill requires annual reporting of specified information regarding nationals of the are exempt from having MEC for the qualified individuals who fail to pay month they are approved. the individual mandate penalty.

3. Imposes an Individual Shared Responsibility Penalty (also known as 06/27/19 Senate Bill (SB) 78 enacted Governor Gavin Newsom signs SB 78 the individual mandate penalty) on individuals who fail to maintain into law. minimum essential coverage. In addition, SB 78 works in tandem with Assembly Bill (AB) 414, which serves to address the reporting aspect of the individual mandate penalty.

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INSTITUTE FOR HEALTH POLICY AND LEADERSHIP September 2019

What is a minimum essential coverage individual mandate? The minimum essential coverage individual mandate (also known as the “individual mandate”) requires each applicable individual (i.e. a California resident and any of his/her dependents) to be covered by a health insurance plan or qualified health plan (QHP) that provides minimum essential coverage. Failure to What does not qualify as minimum essential meet this requirement each month results in the coverage? payment of a tax penalty.2 On the contrary, health insurance plans and QHPs What qualifies as minimum essential coverage? that do not qualify as MEC are incomprehensive and act just as a supplement to a health insurance Under SB 78, nongrandfathered health insurance plan. These plans include, but are not limited to plans and QHPs that qualify as MEC are the following: comprehensive and must include the 10 essential • Coverage only for accident or disability 2 health benefits. These plans include, but are not income insurance or a combination of the limited to the following: two • Eligible employer-sponsored plans • Coverage issued as a supplement to liability • Government-sponsored programs such as insurance , Medicaid, TRICARE, Children’s • Liability insurance, including general Health Insurance Plan (CHIP), and Refugee liability insurance and automobile liability Medical Assistance insurance • The University of California Student Health • Workers’ compensation or similar insurance Insurance Plan and Voluntary Dependent Plan • Automobile medical payment insurance • Credit-only insurance • Individual health care service plans • Coverage for onsite medical clinics

AB 414: Healthcare coverage: minimum What is AB 414? essential coverage

California Assembly Bill (AB) 414 was introduced by Assembly Member Rob Bonta (D-Oakland) on February 7, 2019. This bill requires the Franchise Tax Board (FTB) to annually report to the Legislature specified information regarding the Individual Shared Responsibility Penalty, the minimum essential coverage individual mandate and state financial subsidies paid for health care coverage.3 As of August 14, 2019, AB 414 was passed by both the Senate and the House of Assembly and sent to the desk of the Governor for approval. 2

INSTITUTE FOR HEALTH POLICY AND LEADERSHIP September 2019

What are the 10 essential health benefits? By law, each nongranfathered health insurance plan or QHP is mandated to provide their participants with the following services: 2 1. Laboratory Services 2. Emergency Services 3. Prescription Drugs 4. Mental Health & Substance Disorder Services, including Behavioral Health Treatment 5. Maternity & Newborn Care Specifically, the individual mandate penalty was 6. Pediatric Services, including Oral & Vision Care included in the ACA for the following three 7. Rehabilitative & Habilitative Services & Devices reasons:

8. Ambulatory Patient Services (Outpatient Services) 1. To encourage people to sign up for health 9. Preventive & Wellness Services and Chronic insurance. Disease Management 2. To help decrease insurance premiums by 10. Hospitalization encouraging healthy people to join and thereby lower the risk for insurance What is the Individual Shared companies. Responsibility Penalty? 3. To help fund ACA subsidies since some people will choose to pay the penalty rather The Individual Shared Responsibility Penalty is a than sign up for insurance due to personal tax penalty paid by an individual or their dependent who fails to maintain MEC during any month. This cost effectiveness. penalty is very similar to the federal tax penalty and Effect of removing the Individual Mandate Penalty is paid as part of the individual’s state tax return.3 The 2017 Tax Cuts and Jobs Act, however, zeroed out The penalty paid is $695 per adult and $347.50 per the individual mandate tax penalty effective in 2019, child under the age of 18 or 2.5% of one’s annual nullifying this integral component of the ACA.5 On a household income, whichever is greater.1 It will be national level, the Congressional Budget Office effective January 1, 2020.3 (CBO) estimates that the zero-dollar penalty will What is the reason for the cause average premium in the individual market to be about 10% higher than they would have been individual mandate with the previous mandate and penalty. On a state- and penalty? level, California is forecasted to experience a 4% to 7% increase is premium costs as a result of the zero- In 2014, The Patient Protection and Affordable Care Act dollar penalty.6 To keep premium costs low and (ACA) took effect and led to a substantial increase in increase access to healthcare, SB 78 and AB 414 were health insurance coverage. Under the ACA, nearly introduced to address this issue at the state level. As 4 20 million people gained coverage. This increase is of June 2019, California is one of five states that have attributed to the expansion of Medicaid eligibility, passed laws that reinstate individual mandate Marketplace subsidies, and the implementation of a penalty.8 tax penalty for uninsured individuals.

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INSTITUTE FOR HEALTH POLICY AND LEADERSHIP September 2019

Conclusion

As a result of signing SB 78 into law, Californians are required to obtain insurance or pay a penalty effective January 1, 2020. Although penalties are neither pleasant nor popular, California’s individual mandate and penalty will help to continue the substantial gains that resulted from the ACA, making strides to further decrease the amount of uninsured individuals, increase access and affordability of health insurance, and reduce premium costs. Did you know?

According to the Institute of References Public Policy, 1. https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml? 3.8 million bill_id=201920200SB78 Medi-Cal enrollees gained coverage 2. https://leginfo.legislature.ca.gov/faces/codes_displaySectio under the ACA expansion as of n.xhtml?lawCode=HSC§ionNum=1367.006.&article=5. October 2017.7 &highlight=true&keyword=essential+health+benefits

3. https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml? bill_id=201920200AB414

4. https://www.kff.org/uninsured/fact-sheet/key-facts-about- the-uninsured-population/

5. https://lrus.wolterskluwer.com/news/health-reform/tax- cuts-and-jobs-act-effectively-repealing-individual-mandate- signed-by-trump/44397/

6. https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018. 05161 11209 Anderson Street 7. https://www.ppic.org/blog/tag/medi-cal/ Loma Linda, CA 92354 Phone: 909-558-7022 8. https://www.healthcare.com/blog/states-with-individual- Fax: 909-558-5638 mandate/ www.IHPL.llu.edu

Questions? Please contact Queen-Ivie Egiebor, MPH. Doctoral Graduate Assistant at the Institute for Health Policy & Leadership ([email protected])

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