SACRAMENTO, Calif. — Nearly three years after California began fining residents who don’t have medical health insurance, the state has not distributed any of the income it has collected, KHN has realized — cash that was meant to assist Californians struggling to pay for protection.
And up to now, nearly all of Californians paying the tax penalty for not having insurance coverage are low- and middle-income earners, in keeping with state tax officers — simply the folks the cash was meant to assist.
“It’s concerning,” stated Diana Douglas, a lobbyist with Health Access California, which advocated for the mandate. “The whole idea was if we’re going to collect money from people who can’t afford coverage, to use that revenue to help people afford it and actually get care. It’s not fair to people who can’t afford it.”
State finance officers have estimated that the income collected through the penalty in its first three years, from 2020 by means of 2022, will whole about $1.3 billion. Gov. Gavin Newsom argues the state ought to maintain on to the cash in case Californians need assistance paying for medical health insurance sooner or later.
Newsom and Democratic lawmakers adopted the state medical health insurance requirement in 2019, practically two years after the Republican-controlled Congress eradicated the federal penalty for not having medical health insurance that had been instituted underneath the Affordable Care Act. Then-President Donald Trump pushed to scrap it, arguing that the Obamacare provision was “very unfair.”
Newsom argued, nonetheless, {that a} so-called individual mandate would assist California obtain common protection by requiring everybody to have medical health insurance, and stated the penalty cash could be used to assist residents buy plans through Covered California, the state’s Affordable Care Act insurance coverage market.
The penalty income was supposed to assist fund state-based subsidies for low- and middle-income Californians who buy protection by means of Covered California that Newsom and state lawmakers authorized the identical 12 months. The state subsidies would complement the prevailing federal monetary help provided underneath Obamacare.
But covid-19 modified the equation.
To stop folks from dropping insurance coverage throughout the pandemic, the Biden administration and the Democratic-controlled Congress boosted federal subsidies for Americans who purchase medical health insurance by means of Obamacare exchanges — and which have been not too long ago prolonged underneath the federal Inflation Reduction Act.
The Newsom administration argued the extra federal help was sufficient to assist residents afford protection, and California stopped offering the state subsidies in May 2021. They had been in place lower than two years and had been financed by about $328 million in startup cash from the state’s common fund.
But the state continued levying the tax penalty, and the Newsom administration is stockpiling a few of the cash given fiscal projections that present California is going through an uncertain financial outlook, in keeping with H.D. Palmer, the spokesperson for the state Department of Finance. Tax revenues this 12 months are billions beneath projections, he stated, and the penalty cash could possibly be wanted when the extra federal monetary help expires on the finish of 2025 — if it’s not prolonged within the meantime — or if Republicans take management of Congress or the White House after which scrap the improved subsidies.
“The recent downturn in state tax revenues highlights the importance of having those funds set aside,” Newsom spokesperson Alex Stack stated.
In 2021, Newsom and state legislators transferred $333.4 million of the penalty cash right into a particular fund “for future use for health affordability programs” in Covered California, although that was a one-time transfer and the cash won’t be spent anytime quickly, Palmer stated.
California is amongst a number of states that adopted medical health insurance necessities after the federal penalty was gutted. California assesses its penalty on uninsured residents after they file their annual state revenue taxes.
For the 2020 tax 12 months, the primary 12 months the mandate was in place, California collected about $403 million from uninsured folks, with the typical per-person penalty amounting to $1,196, in keeping with the state Franchise Tax Board.
Of the roughly 337,000 Californians penalized that 12 months, about 225,400 had incomes at or beneath 400% of the federal poverty degree, or $49,960 for a single individual and $85,320 for a household of three. Some lowest-income earners are exempt from the penalty.
The Newsom administration projected that the income from the tax penalty would enhance in each 2021 and 2022, together with to $435 million this 12 months.
Because tax collections take time to course of, the precise whole raised up to now is unclear. But the administration estimates the state will acquire about $1.3 billion over the primary three years of the mandate. Most of that cash will probably be deposited into the state common fund and can be utilized for something the governor and lawmakers select to spend it on. There isn’t any requirement that any penalty cash be spent on well being care or monetary help, Palmer confirmed.
Meanwhile, premiums are rising for a lot of shoppers buying protection by means of Covered California, with a mean enhance of 5.6% for 2023, in keeping with James Scullary, a spokesperson for {the marketplace}.
Deductibles and different out-of-pocket prices are additionally going up for some folks, and shopper advocates worry that with out higher monetary help, extra Californians will choose out of buying protection — or forgo care altogether.
For occasion, a mid-tier Covered California insurance coverage plan for a person can have a $4,750 medical deductible and an annual out-of-pocket most of $8,750 in 2023 — up from $3,700 and $8,200, respectively, this 12 months.
“We already had concerns about reinstating the penalty on the uninsured because it hits poor people the hardest, and now we’re seeing lower-income people making tough choices about paying for health care or other basic necessities like gas, food, and rent,” stated Linda Nguy, a lobbyist with the Western Center on Law and Poverty. “Let’s spend the money we’re collecting to help make it more affordable or eliminate the mandate if we’re not spending it.”
Some Democratic lawmakers, backed by Heath Access and a broad coalition of well being advocates, insurers, and small companies, are pushing Newsom to use the penalty income to assist uninsured and low-income Californians. They argue that even with the extra federal help, folks nonetheless need assistance to decrease their out-of-pocket prices.
“Small businesses and their employees are struggling to afford health care,” stated Bianca Blomquist, California coverage director for the Small Business Majority lobbying group. “When the individual mandate was established, the understanding was that even though the money is going to the general fund, it would be spent on affordability assistance in Covered California. That’s a big reason we supported it.”
A invoice this 12 months by state Sen. Richard Pan (D-Sacramento), who’s leaving workplace due to time period limits, sought to funnel state penalty cash into Covered California to scale back out-of-pocket prices for some shoppers, together with scrapping their deductibles. But Newsom vetoed the invoice, arguing that the cash could possibly be wanted in future years to reinstate the state-based subsidies.
Advocates vow to proceed pushing subsequent 12 months.
“Having insurance doesn’t mean anything if you can’t afford the deductible, and that’s a huge barrier for people with chronic diseases who have very high health care costs,” Pan stated. “People still can’t afford to go to the doctor.”
Republicans joined Democratic lawmakers in expressing frustration. Former state Sen. Jeff Stone, who was a staunch opponent of the state mandate and has since relocated to Nevada, blasted the penalty as “reverse Robin Hood” — taking from the poor and giving to the rich.
“Impoverished people are being forced to pay that penalty, and it’s being put right into the general fund for any purpose,” he stated. “If the state isn’t spending it like the governor said it would, return it to taxpayers.”
This story was produced by KHN, which publishes California Healthline, an editorially impartial service of the California Health Care Foundation.