By Bernard J. Wolfson December
13, 2019
Californians,
be warned: A new state law could make you liable for a hefty tax penalty if you
do not have health insurance next year and beyond.
But
some of you need not worry: The law contains several exemptions
that will allow certain people to avoid the penalty, among them prisoners,
low-income residents and those living abroad.
“It
will be really important that people get clear guidance and instruction to make
sure they don’t inadvertently pay a penalty when they are eligible for an
exemption,” says Laurel Lucia, director
of the Health Care Program at the University of California-Berkeley’s Center
for Labor Research and Education.
California’s
penalty is modeled on the one originally in the federal
Affordable Care Act. Congress eliminated the federal penalty,
effective this year.
The
Golden State will join Massachusetts, New Jersey, Rhode
Island, Vermont and Washington, D.C., in requiring their residents
to have health coverage and dinging those without it.
Most
types of insurance, including Medi-Cal, Medicare and employer-sponsored
coverage, will satisfy California’s coverage requirement. People who purchase
insurance for themselves and their families, either through Covered California,
the state’s health insurance exchange, or the open market, will have until Jan.
31 to buy a health plan for 2020.
If you
aren’t covered and owe a penalty for 2020, it will be due when you file your
tax return in 2021. The penalty will amount to
$695 for an adult and half that much for dependent children. Some people with
higher incomes instead will have to pay 2.5% of their income, which could make
their penalty quite a bit heftier.
Penalty
payments are expected to raise $317 million in the first year they are
collected, according to the state Legislative Analyst’s Office. The money will
help pay for new state subsidies intended
to make insurance more affordable for some people.
You
won’t have to pay the penalty if you are uninsured for three consecutive months
or less during the year, or if you are incarcerated or are Native American.
Likewise, if you are in the U.S. illegally.
General
hardship exemptions also are available if you are facing personal or family
difficulties, including homelessness, domestic violence, bankruptcy, eviction
or the consequences of a natural disaster.
And
you’re off the hook if your household income is below the threshold for filing
a tax return. This was the most common exemption from the federal penalty,
according to Internal Revenue Service data
based on 2016 returns. It might be even more popular under the California law,
since the state’s filing threshold is higher than the federal one, Lucia says.
You can
also claim an exemption if you would have to spend more than 8.24% of your
income on insurance premiums in 2020. This so-called affordability exemption
was also among the most common under the federal law.
How you
claim an exemption depends on the type you are seeking.
Covered
California will handle three types of exemptions: religious conscience, general
hardship and affordability. Each will require filling out a different
application, and the applications will be available starting in January, says
James Scullary, an exchange spokesman.
For
other exemptions, you’ll need to apply when you file your 2020 return with the
Franchise Tax Board in early 2021. A tax board spokeswoman promises that “our
tax forms and instructions will include information for all exemptions claimed
on the tax return.”
You can
also apply to the tax board for an affordability exemption when you file your
return.
Gerald
Kominski, a senior fellow at the UCLA Center for Health Policy Research,
says the 8.24% threshold to qualify for the affordability exemption is too high
and pushes many middle-class families to pay a penalty even when they are
hard-pressed to buy insurance.
Steven
Morelock, a resident of Los Angeles, paid hundreds of dollars in federal
penalties for several years because he felt too financially stressed to plunk
down $250 a month for a high-deductible health plan. He was already shelling
out nearly half of his $2,500-a-month salary in rent alone.
“I
would have had to change my habits very dramatically,” says Morelock, 41, a
labor organizer. “It would have cut the amount of money I had for non-fixed
costs by about half.” He finally got employer-sponsored insurance late last
year.
Another
exemption that has stirred some debate is for membership in a health care sharing
ministry — an association of religiously like-minded people, primarily
Christians, who cover one another’s medical costs.
Legislators
and others who opposed including this exemption in California’s law argued that
the ministries are subject to little regulatory scrutiny, the coverage they
offer is limited, and it’s not guaranteed. More recently, concerns have arisen
about sham ministries engaged
in deceptive business practices.
Dr.
Dave Weldon, president of the Alliance of Health Care Sharing
Ministries, acknowledges some of the limitations and says the organizations
he represents “all counsel their members that this is not insurance, there’s no
contract, there’s no obligation to pay.”
Bob
Stedman, 55, says he and his family were exempt from the federal penalty every
year because of their membership in Samaritan Ministries International. The
Lake Forest, Calif., resident plans to take the same exemption under the
California law.
Stedman
figures he’s saving about $1,000 to $1,500 a month in premiums compared with
regular insurance, and was pleased when the $50,000 bill he received following
a stroke was heavily discounted by the hospital and then almost entirely
covered by other ministry members. And knowing his money is not being used to
finance abortions, which most commercial health plans in California are
required to cover, gives him “the benefit of a clear conscience,” he says.
Weldon
says the exemption is warranted on those grounds alone. “This nation has a long
history of religious accommodation,” he says.
If you’re
not sure whether you might qualify for an exemption, you can get more
information from Covered California or the tax board.
Contact
Covered California at www.coveredca.com or by phone: 800-300-1506.
For the tax board, log on to www.ftb.ca.gov or call 800-852-5711.
But
don’t limit yourself to those two agencies. Insurance agents and tax preparers
across the state are trying to master the details of the new law, and they can
help.
For a
list of insurance agents whose help is free, log on to the Covered California
website and click on “find help” or go to the website of the National
Association of Health Underwriters (www.nahu.org) and hit “find an agent.” The
California Society of Tax Consultants (https://www.cstcsociety.org/)
and the California Society of CPAs (www.calcpa.org) can help
you find a tax preparer.
This KHN story first published on California
Healthline, a service of the California Health Care Foundation.
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