California Individual Health Coverage Mandate and MEC

There’s a new law going into affect Jan. 1 that you need to know about if you live in California or have employees in California. A new individual coverage health mandate will require that each employee have health plans that meet minimum essential coverage (MEC). Here’s what that means for you. 

Beginning January 1st, 2020, a new law requires all California residents to purchase health plans that meet MEC requirements for themselves, their spouse, and their dependents.

If residents fail to do this, they will face tax penalties unless they qualify for exemptions. It also increases premium subsidies for those who purchase insurance through Covered California. 

The California individual health coverage mandate is modeled after the individual mandate that was initially part of the Affordable Care Act but that was later repealed under President Trump. 

For employers who don’t currently offer a group plan, this new law is going to motivate them to offer substantial coverage for their employees.   

While the law doesn’t require the employer to give their employees immediate notice of the new individual health overage mandate, the state of California will notify individuals who did not indicate coverage for themselves and their deponents on their individual income tax returns that meets the MEC requirement. 

An important thing to understand is that the law does not require that employers provide health coverage (although it may be required anyway by the ACA). Employees may obtain coverage through Covered California if their employers do not provide health coverage.

What is minimum essential health coverage anyway?

Minimum Essential Coverage (MEC) is a term that came from the Affordable Care Act (also known as Obamacare). Prior to 2019, individuals were required to purchase a health plan that met MEC standards or pay a tax penalty. While the tax penalty has been lifted nationally (some states still have a state penalty), the law has not gone away and individuals are still required to enroll in qualified health plans.

There are several requirements for a plan to be considered MEC including coverage of the 10 essential health benefits (such as preventative and wellness services, immunizations, maternity, mental health, etc.) and limits on cost sharing (copays, deductibles, and out of pocket maximum).

Important paperwork and reporting to remember for the California individual health coverage mandate

If you’re an employer of California residents, or you sponsor an employment based health plan in the state, or if you’re a California insurer that provides MEC plans, the law imposes reporting and disclosure obligations. Make sure to mark these dates on your calendar. 

FTB: You must report coverage to the California Franchise Tax Board (FTB) by March 31st of the following year. For example, for 2020 health plans (the first that will be affected by this new law), you’d have to report by March 31st, 2021. 
Reporting forms: Fill out the reporting forms from the FTB and submit. Details will include things like names, dependents’ names, address, tax ID number, and dates of coverage. Keeping good records will help you be prepared for this
Written statement: Employers that offer employer-sponsored health plans that meet the individual mandate’s MEC requirement must communicate in writing to each employee (or former employee) that includes the name, address and phone number for the employer. This must be submitted by January 31st of the following calendar year after the coverage was provided. For 2020 coverage, this written statement would be due January 31st, 2021. 

Employers that are Applicable Large Employers (ALEs) can provide IRS Form 1095-C to covered employees. 

If you don’t take care of the items above, you could be subject to tax penalties of $50 per individual per year that’s covered under your plan. 

For employers: how to satisfy the individual mandate with an HRA

If you don’t currently offer a health plan that meets MEC and you want to help your employees satisfy the individual health coverage mandate, an HRA might be the way to go. Group plans continue to be very expensive and very one-size-fits all, so HRAs like the new Individual Coverage HRA or the Qualified Small Employer HRA will help employers reimburse employees for premiums and qualified medical expenses tax-free. Employees will then choose the plan that works best for them; it just needs to meet minimum essential coverage to qualify! 

For employees: where to buy MEC plans in California 

If you’re an employee who doesn’t receive a group plan through your employer, you’ll want to find a MEC plan to avoid penalties. Plans found via Covered California qualify as such. We’ve also put together a post on where to buy MEC for HRAs that will be helpful if you’re looking for affordable options on your own. 

Why California HRAs are on the rise

HRAs are beginning to gain traction as an affordable and more efficient alternative to traditional group plans across the country. In fact, California has several cities listed in our top ICHRA markets with conditions prime for this new model of healthcare (hello, LA, San Jose, Riverside, San Diego, Sacramento, and San Francisco!).  California QSEHRAs have been really successful in the past and we think the ICHRA will be no different. It simply expands the benefits to a larger pool of employers. 

If you are interested in learning more about QSEHRA or ICHRA as a way to satisfy the new California individual mandate, make sure to reach out to our team of HRA experts online or read our post about how to decide between an ICHRA and a QSEHRA. We would be happy to help. 

→ Read our California small business health insurance guide!