Get to Know the ACA’s Statewide Individual Mandates
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In January 2019, the federal Individual Mandate was effectively eliminated. Many states responded by implementing their own and some of them have both employer and employee penalties tied to them.
Currently, California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont have written into law statewide Individual Mandates. For most states, the individual penalty mirrors the federal individual mandate penalty that was in effect for 2018. The notable exception being Massachusetts, whose individual mandate predates the ACA. California and Massachusetts have penalties in place for employers that fail to comply with the statewide legislation. These are penalties in addition to the penalties assessed on employers for failing to comply with the ACA’s Employer Mandate.
Below is a breakdown of state penalties for individuals and employers:
In California, the annual penalty is 2.5% of household income or a per person charge, whichever is higher. The per person penalty is $695 per adult and $375.50 per child. The penalty is capped at the state average premium for a bronze level plan on the California Exchange for the applicable household size. California’s Individual Mandate goes into effect January 2020.
The law also calls for reporting obligations for employers similar to those under Internal Revenue Code 6055 on “applicable entities,” which are those providing coverage, including insurance carriers and employers that sponsor health coverage. While the specifics of such additional reporting obligations have not yet been specified, the reporting information is expected to be the same information required under the ACA and must be filed annually with the Franchise Tax Board by March 31, starting in 2021. Failure to do so may result in a penalty to the reporting entity of $50 per applicable individual.
Washington D.C. imposes a penalty of $695 per uninsured adult, or 2.5% of household income, whichever is greater with a cap on the penalty equaling the average cost of a bronze plan on the D.C. exchange. The District of Columbia’s Individual Mandate went into effect January this year.
For Massachusetts state residents, the penalty is up to 50% of the minimum monthly premium payment the person would have qualified for through the Health Connector site and applies only to adults (18 and up). Employers are assessed penalties for failing to furnish forms to employees. A penalty of $50 per employee is assessed if an employer fails to submit an annual Health Insurance Responsibility Disclosure by November 30 annually. The overall penalty is capped at $50,000. The submission does not need to contain employee-level details like it does in annual ACA submissions to the IRS and is generally done by insurance carriers on behalf of individual employers. Massachusetts’s mandate has been in place since 2006.
In New Jersey, individuals who do not comply with the individual mandate are assessed penalties based on the higher penalty amount calculated from either 2.5% of gross household income or $695 per individual and $347.50 per child. Like California and D.C. those penalties are capped. If it’s a per-person charge, the maximum penalty is $2,085. If the penalty is based on income, the maximum is the average yearly premium of a New Jersey bronze plan. New Jersey’s individual mandate went into effect January this year.
In Rhode Island, individual penalties apply to residents based on 2.5% of their household income or $695 per adult, whichever is greater. The penalty is capped at the average cost of the state exchange’s bronze plan. Penalties also increase annually with inflation. The mandate goes into effect January 2020.
Vermont’s state level mandate also goes into effect January 2020. No individual penalties have been established yet.
Organizations should note that employer penalties in California and Massachusetts are penalty assessments issued by those states in addition to those imposed by the IRS for failing to file forms 1094-C and 1095-C to the IRS and for furnishing to applicable employees under IRC 4980H.
While there are currently no employer penalties in place for Washington D.C., New Jersey, Rhode Island, or Vermont, expect those states to develop penalty assessments and guidelines in the future.
The ACA’s Employer Mandate requires Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
The IRS is actively issuing penalty assessment to employers that it believes have not complied with the ACA. These include Letter 226J penalty assessments to employers identified as having failed to comply with the ACA for the 2017 tax year, as well as penalty notices Letter 5005A and Letter 972CG. These notices are issued to employers who fail to file the annual forms 1094-C and 1095-C with employees or with the IRS by the required deadlines.
If your organization receives one of these penalty notices, you should consult an expert to provide assistance in responding to the IRS.
To learn more about ACA compliance for the 2019 tax year, click here.
For ACA reporting deadlines in 2020 for the 2019 tax year, organizations should review this link for important dates and requirements.
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