Employee Benefits Compliance

California Individual Mandate Effective January 2020 Requires Reporting in 2021

California will soon join the ranks of Massachusetts, New Jersey, Vermont and the District of Columbia by imposing a penalty on residents who fail to maintain Minimum Essential Coverage (MEC). Essentially, the new mandate mirrors that of the Affordable Care Act (ACA) that lost its teeth when the penalty was repealed. The new law also carries with it reporting obligations to begin in 2021. See below for more details.

January 2020

Any state resident failing to maintain MEC could be subject to a tax penalty similar to that which was imposed by the ACA. Similarly, the mandate also provides for hardship exemptions or other exemptions such as being a resident of another state, expatriates, tribal members, health care sharing ministry members and religious exemptions. Also, lapses in coverage of less than three months may also avoid penalty.

What is MEC?

Defined under Health and Safety Code Section 1345.5, California MEC was created in the image of the ACA.

  • Employer-sponsored group health plans unless consisting only of excepted benefits (for example, accident or disability insurance, onsite medical clinics, stand-alone dental or vision plans, workers’ compensation policies, or long-term care insurance)
  • Individual medical insurance policies meeting ACA’s market reform requirements
  • Certain government-sponsored programs, such as Medicare, Medi-Cal, CHIP, TriCare etc.
  • Student health plans

January 2021

Self-funded plan sponsors, along with the insurance carriers, providing MEC to California residents must report to the California Franchise Tax Board (FTB), as well as to the IRS per ACA. Additionally, plan sponsors will also be required to provide the same information to participants. Plan sponsors may use the same Forms 1094/95-B/C submitted to the IRS for ACA reporting to the FTB, as well as for reporting to plan participants and other eligible employees.

DateActionable Item
January 1, 2020California Individual Mandate Takes Effect
January 31, 2021Plan Sponsors Must Provide Individual Mandate Statements to Employees if Not Done so by Carrier
March 31, 2021Submit Individual Mandate Returns to the Franchise Tax Board

Action Required for Some Employers

Plan sponsors should ensure compliance with California law if employing any pertinent California residents; specifically, self-funded plan sponsors should ensure they are preparing for 2021 reporting to the California FTB. The FTB plans to release additional guidance on these reporting requirements ahead of then. Be sure to keep an eye for a news alert from the Leavitt Group once this occurs. If you are not already subscribed, subscribe to the Leavitt Group articles to ensure prompt notice of new rules. Subscribe here!

For complete details, see Senate Bill No. 78: Individual Mandate