California stockpiles from uninsured residents instead of reducing fines

SACRAMENTO, Calif. — Nearly three years after California began fining residents who don’t have health insurance, the state has not distributed any of the revenue it collects, KHN has learned — money that was intended to help Californians struggling to pay for coverage.

And so far, the majority of Californians paying tax penalties for not having insurance are low- and moderate-income earners, according to state tax officials — intended only to help those people pay.

“It’s concerning,” said Diana Douglas, a lobbyist for 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, use that revenue to help people afford and actually get care. It’s not fair to those who can’t afford it.”

State finance officials estimate that revenue collected through fines will total $1.3 billion in its first three years from 2020 to 2022. Gov. Gavin Newsom argues that the state should keep the money in case Californians need help paying for health insurance in the future.

Newsom and Democratic lawmakers adopted state health insurance requirements in 2019, nearly two years after the Republican-controlled Congress eliminated federal penalties for not having health insurance established under the Affordable Care Act. Then-President Donald Trump pushed to repeal Obamacare, arguing the provision was “very unfair.”

Newsom argued that the so-called individual mandate would help California achieve universal coverage that requires everyone to have health insurance, and said the fines would be used to help residents purchase plans through the state’s Affordable Care Act insurance marketplace, Covered California. .

The penalty revenue was supposed to help fund state-based subsidies for low- and moderate-income Californians who purchase coverage through Covered California, which Newsom and state lawmakers approved that same year. State subsidies would supplement existing federal financial assistance provided under Obamacare.

But Covid-19 has changed the equation.

To prevent people from losing insurance during the pandemic, the Biden administration and the Democratic-controlled Congress have increased federal subsidies for Americans who buy health insurance through the Obamacare exchanges — and which were recently increased under the federal Inflation Reduction Act.

The Newsom administration argued that additional federal support was enough to keep residents covered, and California stopped paying state subsidies in May 2021. They were there in less than two years and were funded with about $328 million from the state’s startup money. General Fund.

But the state continues to impose tax penalties, and the Newsom administration is hoarding some money given fiscal projections that show California faces an uncertain economic outlook, according to HD Palmer, a spokesman for the state Department of Finance. Tax revenue is projected to be billions less this year, he said, and the penalty money could be needed when additional federal financial aid expires at the end of 2025 — if it’s not extended by then — or if Republicans take control of Congress or the White House and then Scrap the increased subsidy.

“The recent downturn in state tax revenue underscores the importance of keeping those funds aside,” Newsom spokesman Alex Stack said.

In 2021, Newsom and state lawmakers transferred $333.4 million in fine money to a special fund “for future use for health affordability programs” in Covered California, though that was a one-time move and the money won’t be spent anytime soon, Palmer said.

California is among several states that adopted health insurance requirements after federal penalties. California assesses its penalties on uninsured residents when they file their annual state income tax.

For the 2020 tax year, the first year the mandate went into effect, California collected about $403 million from uninsured people, with an average penalty of $1,196 per person, according to the state Franchise Tax Board.

Of the nearly 337,000 Californians penalized that year, about 225,400 had incomes at or below 400% of the federal poverty level, or $49,960 for a single person and $85,320 for a family of three. Some lowest-income individuals are exempt from the penalty.

The Newsom administration estimates that revenue from tax penalties will increase in both 2021 and 2022, including $435 million this year.

Because tax collections take time to process, it is unclear when the exact total is raised. But the administration estimated the state would collect about $1.3 billion in the first three years of the mandate. Most of that money will be deposited into the state general fund and can be used however the governor and lawmakers choose to spend it. No penalty money needs to be spent on health care or financial aid, Palmer confirmed.

Meanwhile, premiums are rising for many customers who purchase coverage through Covered California, with an average increase of 5.6% for 2023, according to James Schoolery, a Marketplace spokesman.

Deductibles and other out-of-pocket costs are also rising for some people, and consumer advocates fear that without more financial help, more Californians will opt out of buying coverage — or forgo care altogether.

For example, a mid-level Covered California insurance plan for an individual will have a $4,750 medical deductible and an annual out-of-pocket maximum of $8,750 in 2023 — up from $3,700 and $8,200, respectively, this year.

“We’ve already had concerns about reinstating the penalty on the uninsured because it hits poor people the hardest, and now we’re seeing low-income people making tough choices about paying for health care or other basic necessities like gas, food and rent,” said Linda Ngui. Lobbyist for the Western Center on Law and Poverty. “Let’s spend the money we’re raising to make it more affordable or if we don’t spend it help eliminate the mandate.”

Some Democratic lawmakers, backed by a broad coalition of heath access and health advocates, insurers and small businesses, are pushing Newsom to use penalty revenue to help uninsured and low-income Californians. They argue that even with additional federal support, people still need help reducing their out-of-pocket costs.

“Small businesses and their employees are struggling to afford health care,” said Bianca Blomquist, policy director for the California Small Business Majority lobbying group. “When the individual mandate was established, it was understood that even though the money was going into the general fund, it would be spent on affordability assistance to Covered California. That’s one of the big reasons we supported it.”

A bill this year by state Sen. Richard Pan (D-Sacramento), who is leaving office due to term limits, sought to funnel state penalty money to Covered California to reduce out-of-pocket costs for some consumers, including revoking their deductibles. But Newsom vetoed the bill, arguing that the money might be needed to reinstate state-based subsidies in future years.

Advocates have vowed to continue the push next year.

“Having insurance doesn’t mean you can’t afford the deductible, and that’s a huge barrier for people with chronic diseases, whose health care costs are high,” Pan said. “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 moved to Nevada, blasted the punishment as a “reverse Robin Hood” — taking from the poor and giving to the rich.

“Poor people are being forced to pay that fine, and it’s being put into the general fund for whatever purpose,” he said. “If the state doesn’t spend it like the governor said, give it back to the taxpayers.”

This story was produced by KHN, which publishes California Healthline, the editorially independent service of the California Health Care Foundation.

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