By - May 30, 2019

Why State Healthcare Individual Mandates are Becoming More Popular

Why State Healthcare Individual Mandates are Becoming More Popular

This is the first year since 2015 the federal healthcare individual mandate penalty is not in place. Congress passed the Tax Cuts and Jobs Act in December 2017, eliminating the penalty effective January 1, 2019. The law that every individual must have healthcare has not changed, but there is no longer a federal penalty. So far, the absence of the penalty has not caused a large decrease in health insurance participation as predicted. The Centers for Medicare and Medicaid Services reported enrollment fell from 8.8 million to 8.5 million from 2018 to 2019.

There are several reasons participation didn’t drop off as experts expected. Individuals may not be aware there is no longer a penalty, they may enjoy the security of insurance or they may live in a state with its own version of an ACA individual mandate penalty.

Why states are enacting their own penalties for not having health insurance

Some states turned to state-level individual mandates in order to keep their ACA marketplaces stable. By requiring healthy individuals to have health insurance, it can help spread the costs so those with chronic conditions don’t end up paying so much. Also, adding an individual mandate penalty gives states extra funds for other projects. One of the other projects could be assisting lower-income individuals obtain health insurance.

Which states enacted a healthcare individual mandate?

So far, Massachusetts, New Jersey, the District of Columbia and Vermont have passed individual mandates. Penalties vary and may change yearly, but can be range from a couple hundred dollars to $1500. Below is a brief summary of what we know about the current state mandates.

StateDate Individual Mandate in EffectEmployer reporting obligation2019 Individual Mandate Penalty  
Massachusetts2006Yes-reinstated for 2018Ranges from $264 to $1,524 per taxpayer
New Jersey2019Yes-must file in 2020 for 2019 2.5% of salary or $695 per taxpayer
District of Columbia2019Yes-must file in 2020 for 20192.5% of salary or $700 per taxpayer
Vermont2020To be determined To be determined

What’s next for states?

Many states that filed an appeal against the ruling that the ACA is unconstitutional are considering adding a healthcare individual mandate.  Hawaii, California, Washington, Connecticut, Rhode Island and Minnesota are discussing their own versions of this new law.

California individual mandate passes the House

The California House passed the individual mandate bill AB-414 on May 29, 2019, and it has been passed to the Senate for consideration.

Meanwhile, the State also issued proposed legislation for a comprehensive individual mandate to take effect on January 1, 2020. The legislation could allow up to 850,000 residents to receive financial assistance in paying their premiums, along with state-funded programs to advertise and help residents navigate the marketplace. Included within the legislation are employer reporting requirements to report the same information gathered by the IRS to satisfy IRS Code 6055 reporting requirements. Employers who fail to comply will be penalized $50 per individual not reported to the State.

How do healthcare individual mandates affect employers?

Many of these state individual mandates include provisions for employer reporting. For example, if an organization has any employees that file taxes in Massachusetts, New Jersey or the District of Columbia, they are legally required to do separate reporting for each state.  This reporting obligation gets more complex as more states pass their own versions of the healthcare individual mandate.

The State of Massachusetts reinstated their employer reporting requirement in 2018, likely in reaction to the federal individual mandate penalty changes. Every tax year by November 30th, employers are required to file a HIRD form with the State outlining the coverage offered to employees.

Need help with ACA or state reporting?

Tango Health helps our clients keep up with what’s new with the ACA and state individual mandates. We are an innovative software and services company focused on providing a higher standard of accuracy for our ACA clients.

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