California racks up penalties for uninsured residents instead of cutting care costs

California racks up penalties for uninsured residents instead of cutting care costs

SACRAMENTO, Calif. — Nearly three years after California began fining residents who lack health insurance, the state has not distributed any of the revenue it collected, KHN has learned — money intended to help Californians who are struggling to pay for coverage.

And so far, the majority of Californians paying the penalty tax for not having insurance are low- or middle-income people, according to state tax officials — just the people the money was intended for. to help.

“It’s concerning,” said Diana Douglas, a Health Access California lobbyist who advocated for the mandate. “The idea was to raise money from people who can’t afford coverage, use that revenue to help people afford it and get care. It’s not fair to those who can’t afford it. »

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

Newsom and Democratic lawmakers passed the state health insurance requirement in 2019, nearly two years after the Republican-controlled Congress eliminated the federal penalty for not having health insurance that had been instituted under the Affordable Care Act. Then-President Donald Trump pushed for it to be scrapped, arguing that the Obamacare provision was “very unfair”.

Newsom, however, argued that a so-called individual mandate would help California achieve universal coverage by requiring everyone to have health insurance, and said the penalty money would be used to help residents buy plans through Covered California, the state’s Affordable Care Act insurance marketplace. .

The penalty revenue was supposed to help fund state subsidies for low- and middle-income Californians who buy coverage through Covered California that Newsom and state lawmakers approved the same year. The state grants would supplement existing federal financial assistance offered through Obamacare.

But covid-19 has changed the equation.

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

The Newsom administration argued that the additional federal aid was enough to help residents afford coverage, and California stopped providing the state subsidies in May 2021. They had been in place for less than two years and had been funded by approximately $328 million in state start-up funds. general fund.

But the state continued to levy the tax penalty and the Newsom administration is hoarding some of the money given budget projections that show California faces an uncertain economic outlook, according to department spokesman HD Palmer. of State Finance. Tax revenue this year is billions lower than expected, he said, and the penalty money could be needed when additional federal financial assistance expires at the end of 2025 – if not. not extended in the meantime – or if the Republicans take control of Congress or the White Retain then cut the enhanced subsidies.

“The recent decline in state tax revenue underscores the importance of setting these funds aside,” Newsom spokesman Alex Stack said.

In 2021, Newsom and state lawmakers transferred $333.4 million of the penalty money to a special fund “for future use for health affordability programs” in Covered California, although it’s a one-time decision and the money won’t be spent anytime soon, Palmer said.

California is among several states that enacted health insurance requirements after the federal sanction was overturned. California assesses its penalty on uninsured residents when they file their annual state income taxes.

For the 2020 tax year, the first year the mandate was in place, California collected about $403 million from uninsured people, with the average penalty per person being $1,196, according to the Franchise. State Tax Board.

Of the approximately 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. Certain employees with the lowest incomes are exempt from the penalty.

The Newsom administration has projected penalty tax revenue to rise in 2021 and 2022, including to $435 million this year.

As tax collections take time to process, the exact total collected to date is unclear. But the administration estimates the state will collect about $1.3 billion in the first three years of the term. Most of that money will be deposited in the state’s general fund and can be used for whatever the governor and lawmakers choose to spend. There is no requirement that penalty money be spent on health care or financial aid, Palmer confirmed.

Meanwhile, premiums are rising for many consumers buying coverage through Covered California, with an average increase of 5.6% for 2023, according to market spokesman James Scullary.

Deductibles and other out-of-pocket costs are also rising for some people, and consumer advocates fear that without increased financial assistance, more Californians will choose to purchase coverage — or forgo care altogether.

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

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

Some Democratic lawmakers, backed by Heath Access and a broad coalition of 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 the additional federal aid, people still need help to reduce personal expenses.

“Small businesses and their employees are struggling to pay for health care,” said Bianca Blomquist, California policy director for lobby group Small Business Majority. “When the individual mandate was established, it was understood that while the money would go to the general fund, it would be spent on financial accessibility assistance in covered California. That’s a big reason why we supported him.

A bill introduced 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 removing their deductibles. . But Newsom vetoed the bill, arguing the money may be needed in years to come to restore state subsidies.

Supporters promise to keep pushing next year.

“Having insurance means nothing if you can’t pay the deductible, and that’s a huge barrier for people with chronic conditions who have very high health care costs,” Pan said. “People still can’t afford to go to the doctor.”

Republicans joined Democratic lawmakers in expressing their frustration. Former state senator Jeff Stone, who was a staunch opponent of the state mandate and has since moved to Nevada, called the penalty a “reverse Robin Hood” – taking from the poor and giving to the rich.

“Poor people are forced to pay this penalty, and it goes directly 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, an independent editorial service of the California Health Care Foundation.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues. Along with policy analysis and polls, KHN is one of the three main operating programs of the KFF (Kaiser Family Foundation). KFF is an endowed non-profit organization providing information on health issues to the nation.

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