Health care should be accessible and affordable to all Californians. No one should ever have to skip or delay health care due to the cost. Forgoing preventive care or treatment for health conditions is harmful to health and well-being.
Unfortunately, many Californians lack access to affordable health care. For some, monthly health insurance premiums are too high, and so they go without coverage. But even when people have health insurance, steep out-of-pocket costs — such as copays and deductibles — often deter individuals from obtaining the care they need. The impact of unaffordable care falls disproportionately on Californians of color due to a legacy of racist policies and practices:
- Latinx Californians are most likely to experience problems paying medical bills, followed by Black, white, and Asian Californians.
- Latinx and Black Californians are more likely to report having medical debt.
- Black and Latinx Californians are most likely to skip health care services due to the cost.
Ensuring that all Californians have access to affordable health coverage and that they can access care when they need it will require additional state investments. In fact, funds are already available to make coverage more affordable for hundreds of thousands of Californians. Yet, Governor Newsom has blocked efforts to use these funds to boost affordability assistance.
California’s Individual Mandate Penalty: A Funding Source to Help Make Health Coverage More Affordable
In 2019, state policymakers created a penalty that applies, with certain exceptions, to people who lack minimum essential health coverage. This penalty is formally called the “Individual Shared Responsibility Penalty,” but is more commonly known as the “individual mandate penalty.”
The individual mandate penalty has two primary purposes:
- Encourage young and healthy people — who might be inclined to go without health insurance — to enroll in coverage in order to ensure a more balanced “risk pool” and prevent premiums from spiraling upward.
- Provide a funding source to reduce the cost of health insurance for people who buy coverage through Covered California, our state’s health insurance marketplace.
The individual mandate penalty can be costly. An adult who lacks coverage for an entire year and doesn’t qualify for an exemption must pay at least $850 plus $425 per dependent child under 18 in the household. This means that a family with two adults and two children could face a penalty of at least $2,550.
Many Californians with low-to-moderate incomes are penalized for lacking health coverage. Specifically, nearly 2 in 5 households who reported that they owed the penalty for tax year 2020 had incomes at or below 266% of the federal poverty level (FPL). In 2020, 266% FPL reflected an annual income of around $34,000; for a family of four, it was about $69,700.
Individual Mandate Penalty Revenue Has Not Been Used for Its Intended Purpose
California is expected to raise a total of $1.4 billion in individual mandate penalty revenue across four state fiscal years: 2020-21 through 2023-24, which begins on July 1, 2023. (The penalty revenue is deposited into the state’s General Fund.) However, none of these dollars have been specifically budgeted to reduce the cost of insurance purchased through Covered California. Instead, some penalty revenue appears to have been absorbed by the state’s General Fund and used to support other public systems and services.
Notably, state leaders did agree in 2021 to deposit $334 million in penalty revenue into a new Health Care Affordability Reserve Fund. These dollars were explicitly set aside to fund affordability assistance for Covered California enrollees.
However, last year the governor halted implementation of an affordability assistance program that would have been supported with the penalty reserve funds. This program would have eliminated deductibles and reduced copays for hundreds of thousands of Californians who purchase health insurance through Covered California — including people with low-to-moderate incomes.
Moreover, the governor now proposes to transfer all $334 million in penalty revenue from the Health Care Affordability Reserve Fund to the state’s General Fund in order to help address the projected budget shortfall. With this proposal, the governor makes clear that he does not prioritize using the penalty revenue for its intended purpose: further reducing the cost of health coverage for Californians who are struggling to afford the cost of care.
The governor also has failed to outline a plan for how to use the hundreds of millions of dollars in penalty revenue that the state will continue to receive each year from Californians who lack minimum essential health coverage. Without a plan, penalty dollars will end up supporting general state budget costs rather than being targeted to assist Californians struggling with the high cost of health care.
Penalizing Californians with Low-to-Moderate Incomes Without Addressing Health Care Affordability Is an Injustice
Penalizing Californians with low-to-moderate incomes for not obtaining health coverage and then failing to use the penalty revenue to address the high cost of coverage and care is an injustice. Additional financial assistance is critical for Californians who are uninsured and struggling to purchase coverage as well as for those who are insured but can’t afford to access the care they need. Governor Newsom should ensure that dollars raised from the state’s individual mandate penalty help people afford health insurance through Covered California, as was intended when the penalty was established.
