The Individual Mandate: Archives

The California Individual Mandate, originally signed into law in 2019, was a response to the federal individual mandate being struck down by the Trump administration.

This state law requires all California residents obtain Minimum Essential Coverage (MEC) for a minimum of nine months, or they may face a tax penalty unless exempt.

Let’s discuss the individual mandate and what employers need to know, starting with a shorthand list of exemptions.

MEC Exemptions

According to the State of California Franchise Tax Board, some exemptions include:

An individual’s income is below the state tax filing threshold
A coverage gap consists of three consecutive months or less
Coverage is not affordable based on the income reporting in your state income tax return
If the cost of the lowest plan, whether marketplace or employer-sponsored, is more than 8.09% of income on an individual’s tax return
The cost of the lowest employer-sponsored family plan, including dependents, is more than 8.09% of the household income
Non-citizens who are not lawfully present in the state
Those who are living abroad or are residents of another state
Members of a health care sharing ministry
Enrolled in limited or restricted-scope Medi-Cal or other similar coverage
Those in federally recognized tribes are eligible for services through an Indian health care provider or the Indian Health Service
Those in jail, except for incarceration, pending the disposition of charges

These exemptions typically must be claimed on your state income tax return.

While the individual mandate went into effect “to reduce the number of uninsured individuals and families,” it also has implications for employers in California. Moreover, the law requires additional reporting from specific organizations.

Employer Reporting Required by the Individual Mandate

Employers must report insurance information to the Franchise Tax Board (FTB) of California by March 31. The data reported includes the enrollment participation of employees and their dependents.

Employers with an insurance provider who reports to the FTB are not required to report in addition to their provider.

What are the Penalties for Not Reporting Insurance Information to the FTB?

Employers who do not meet the filing deadlines of the FTB are subject to a $50 penalty for every employee receiving coverage.

Individually, there is a flat penalty per household member or 2.5% of the gross household income, whichever is higher. If an individual does not obtain coverage for the entire year, they would be subject to a minimum fine of $800.

Why Are There ACA Reporting Requirements for Employers?

For applicable large employers (ALE), the FTB introduced these reporting requirements to help enforce the state’s healthcare mandate.

Employers who offer self-insured or employer-sponsored plans must report individual enrollment through Form 3895C unless their insurer reports via Form 1095-B.

These reports allow the FTB to verify an individual’s coverage and identify who must pay an individual shared responsibility provision (ISRP).

This sounds like a lot, but don’t worry. At SBMA, we take care of all ACA reporting required for the ALEs we work with. We submit Forms 1095-B and 1095-C to ensure you comply with ACA requirements.

Individual Mandates in Other States

Individual mandates are becoming a more common practice in states other than California. The current states who have individual healthcare mandates include:

California
The District of Columbia
Massachusetts
New Jersey
Rhode Island, and
Vermont

Read our article “Understanding the Affordable Care Act Individual Mandate” for a more detailed look at each state’s requirements.

A Final Word

As an employer, it is essential to understand the individual mandate to ensure you remain compliant with reporting requirements and avoid hefty fines.

The best way to stay on top of these requirements is to partner with an insurance provider who handles your reporting. Look at our employer resources page for more information on how we assist employers with their health coverage needs.

All applicable large employers (ALEs) must comply with the Affordable Care Act (ACA), which requires employers to offer minimum essential coverage to all employees.

If an employer does not comply with this employee coverage requirement, it could lead to penalties for the employer and potentially an IRS audit.

Below is a breakdown of ACA penalties A and B and how they could affect your company.

Who is Considered a Large Employer?

First, who is considered a large employer?

Any company or organization with an average of at least 50 full-time employees or “full-time equivalents (FTEs) is considered an applicable large employer.

*For the purposes of the ACA, a full-time employee is someone who works a minimum of 30 hours a week.

What Are ACA Benefits?

The ACA was created in 2010 to offer more affordable health benefits to a wider range of people. Any ACA-compliant benefit plan must cover these 10 health benefits:

“Ambulatory services
Emergency services
Hospitalization
Pregnancy, maternity, and newborn care (before and after birth)
Mental health and substance use disorder services
Prescription drugs
Rehabilitative and habilitative services and devices
Laboratory services
Preventative and wellness services and chronic disease management
Pediatric services”

Additionally, ACA benefits cover birth control and breastfeeding support.

The Employer Mandate (Penalty A)

Employers must offer at least Minimum Essential Coverage (MEC) to any benefit-eligible employee. Non-compliance will generally result in a penalty of $2,750 annually PER eligible employee.

The Employer Mandate (Penalty B)

Employers must offer a minimum value plan that meets 60% actuarial value, including hospitalization services.

The MV plan must be offered at a maximum contribution of 9.86% of the employee’s income – YOU pay the difference.

For example, take a California minimum wage employee: A $10.00/hour employee working a minimum of 30 hours per week has a maximum employee contribution of $128.18 per month.

If the plan cost is $300, YOU pay the difference of $171.82 per month.

Non-compliance will generally result in an annual $4,120.00 penalty PER employee who enrolls in coverage through the state exchange AND receives a premium subsidy.