California is piling up fines from uninsured residents instead of cutting care costs

SACRAMENTO, Calif. — Nearly three years after California began fining residents without health insurance, the state hasn’t distributed any of the proceeds it raised, KHN has learned — money intended to help Californians struggling to to pay for health insurance.

And so far the majority of Californians pay the tax penalty because without insurance, according to the state tax officials, low and middle earners are the people who the money should help.

“It’s concerning,” said Diana Douglas, a lobbyist at Health Access California who campaigned for the mandate. “The whole idea was that we were raising 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 Treasury officials have estimated that the fine will generate approximately $1.3 billion in revenue over the 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 2019 took over the statutory health insurance obligationalmost two years after The Republican-controlled Congress eliminated the federal penalty because they did not have health insurance established under the Affordable Care Act. Then-President Donald Trump pushed for it to be abolished, arguing that the Obamacare provision “very unfair.

However, Newsom argued that a individual mandate would help California achieve universal coverage by requiring everyone to have health insurance and said the fine would be used to help residents purchase plans through Covered California, the state’s Affordable Care Act insurance marketplace.

The penalty proceeds were intended to help fund state subsidies for low- and middle-income Californians who purchase coverage through Covered California, which Newsom and the state legislature approved that same year. The state subsidies would complement existing federal financial assistance offered under Obamacare.

But Covid-19 has changed the equation.

To keep people from losing their insurance during the pandemic, the Biden administration and the Democrat-controlled Congress increased federal grants for Americans who buy health insurance through Obamacare exchanges – and which ones were recently extended according to the Federal Anti-Inflation Act.

The Newsom administration argued with the additional federal aid was enough to help the residents provide coverage, and California stopped providing the state subsidy in May 2021. They were in place for less than two years and received approximately $328 million in seed money from the state’s general fund.

But the state continued to collect the tax penalty, and the Newsom administration is hoarding some of the money amid tax projections showing California faces a tax penalty uncertain economic outlook, according to Treasury Department spokesman HD Palmer. tax revenue this year are billions below projectionshe said, and the fine could be needed if additional federal financial support expires in late 2025 — if it’s not renewed in the meantime — or if Republicans take control of Congress or the White House and then scrap the increased subsidies .

“The recent drop in state tax revenues underscores the importance of putting those funds aside,” said Newsom spokesman Alex Stack.

In 2021, Newsom and state legislatures assigned $333.4 million of the fine into a special fund “for future use for health affordability programs” in Covered California, although this was a one-time move and the money won’t be spent anytime soon, Palmer said.

California is among several states which passed the health insurance requirements after the federal penalty was gutted. California evaluates its penalty for uninsured residents when they file their annual state income taxes.

For the 2020 tax year, the first year the Mandate was in effect, California raised about $403 million by uninsured individuals, with an average penalty per person of $1,196, according to the State Franchise Tax Board.

From the about 337,000 Californians fined That year about 225,400 had income at or below 400% of the federal poverty line, or $49,960 for a single person and $85,320 for a family of three. Some low earners are exempt from the penalty.

The Newsom administration projected revenue from the tax penalty would increase in both 2021 and 2022, including to $435 million this year.

Since tax collections take some time to process, the exact amount is unclear at this time. But the government estimates that the state will raise about $1.3 billion over the first three years of the mandate. Most of that money goes into the general sovereign wealth fund and can be used on whatever the governor and lawmakers want to spend it on. It doesn’t require penalties to be spent on health care or financial assistance, Palmer confirmed.

Meanwhile, premiums for many consumers buying coverage through Covered California are increasing, averaging a 5.6% increase for 2023, according to James Scullary, a spokesman for the market.

Deductibles and other expenses are also goes for some peopleand consumer advocates fear that without greater financial support, more Californians will choose not to buy coverage — or forego care altogether.

For example, a medium-sized Covered California insurance plan for an individual has a $4,750 medical deductible and an annual maximum of $8,750 out of pocket in 2023 – from $3,700 to $8,200or this year.

“We’ve had concerns about reintroducing the penalty for the uninsured because it hits poor people hardest, and now we’re seeing people on lower incomes making difficult decisions when it comes to paying for healthcare or other basic needs like petrol, groceries and pay rent. said Linda Nguy, a lobbyist for the Western Center on Law and Poverty. “Let’s spend the money raised to make it more affordable, or scrap the mandate if we don’t spend it.”

Some Democratic lawmakers, supported by Heath Access and a broad coalition of health advocates, insurerand small businesses, urge Newsom use the penalty proceeds to help uninsured and low-income Californians. They argue that despite the additional government support, people still need help to lower their expenses.

“Small businesses and their employees are struggling to afford health care,” said Bianca Blomquist, California policy director for the Small Business Majority Lobbying Group. “When the individual mandate was established, the consensus was that while the money would go to the general fund, it would be spent on affordable assistance in Covered California. That’s a big reason why we supported it.”

A bill this year by State Senator Richard Pan (D-Sacramento), who is Resigned from office due to term limits, attempted to channel state fines in Covered California to reduce out-of-pocket expenses for some consumers, including eliminating their deductibles. But Newsom vetoed the billand argued that the money may be needed in coming years to reintroduce government subsidies.

Proponents promise to continue to apply pressure next year.

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

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

“Impoverished people will be forced to pay this fine and it will be put directly into the general fund for any purpose,” he said. “If the state doesn’t spend it the way the governor said it would, give it back to the taxpayers.”

This story was produced by KHNwhich published California Healthlinean editorially independent service California Health Care Foundation.

KHN (Kaiser Health News) is a national newsroom producing in-depth journalism on health issues. Along with Policy Analysis and Polling, KHN is one of the three major operational programs at KFF (Kaiser Family Foundation). KFF is a donated non-profit organization that provides information on health issues to the nation.

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