CALIFORNIA Penalties from uninsured stockpiled

SACRAMENTO >> Nearly three years after California started fining residents who don’t have health insurance, the state has not distributed any of the revenue it has collected, KHN has learned — money that was intended to help Californians struggling to pay for coverage.

And so far, most Californians paying the tax penalty for not having insurance are low- and middle-income earners, according to state tax officials — just the people the money was intended to help.

“It’s concerning,” said Diana Douglas, a lobbyist with Health Access California, which advocated for the mandate. “The whole idea was if we’re going to collect 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 finance officials have estimated that the revenue collected via the penalty in its first three years, from 2020 through 2022, will total about $1.3 billion. Gov. Gavin Newsom argues the state should hold on to the money in

case Californians need help paying for health insurance in the future.

Newsom and Democratic lawmakers adopted the state health insurance requirement in 2019, nearly two years after the Republican-controlled Congress eliminated the federal penalty for not having health insurance that had been instituted under the Affordable Care Act. Then-President Donald Trump pushed to scrap it, arguing that the Obamacare provision was “very unfair.”

Newsom argued, however, that a so-called individual mandate would help California achieve universal coverage by requiring everyone to have health insurance, and said the penalty money would be used to help residents purchase plans via Covered California, the state’s Affordable Care Act insurance marketplace.

The penalty revenue was supposed to help fund state-based subsidies for low- and middle-income Californians who purchase coverage through Covered California that Newsom and state lawmakers approved the same year. The state subsidies would supplement the existing federal financial assistance offered under Obamacare.

But COVID-19 changed the equation.

To prevent people from losing insurance during the pandemic, the Biden administration and the Democratic-controlled Congress boosted federal subsidies for Americans who buy health insurance through Obamacare exchanges — and which were recently extended under the federal Inflation Reduction Act.

The Newsom administration argued the additional federal assistance was enough to help residents afford coverage, and California stopped providing the state subsidies in May 2021. They had been in place less than two years and had been financed by about $328 million in startup money from the state’s general fund.

But the state continued levying the tax penalty, and the Newsom administration is stockpiling some of the money given fiscal projections that show California is facing an uncertain economic outlook, according to H.D. Palmer, spokesperson for the state Department of Finance. Tax revenues this year are billions below projections, he said, and the penalty money could be needed when the additional federal financial assistance expires at the end of 2025 — if it’s not extended in the meantime — or if Republicans take control of Congress or the White House and then scrap the enhanced subsidies.

“The recent downturn in state tax revenues highlights the importance of having those funds set aside,” Newsom spokesperson Alex Stack said.

In 2021, Newsom and state legislators transferred $333.4 million of the penalty money into a special fund “for future use for health affordability programs” in Covered California, although that was a one-time move and the money will not be spent anytime soon, Palmer said.

California is among several states that adopted health insurance requirements after the federal penalty was gutted. California assesses its penalty on uninsured residents when they file their annual state income taxes.

For the 2020 tax year, the first year the mandate was in place, California collected about $403 million from uninsured people, with the average per-person penalty amounting to $1,196, according to the state Franchise Tax Board.