The California Health Insurance Penalty: 2023 Update

During his presidency, President Donald Trump, with assistance from the U.S. Congress, rescinded the penalty of the Affordable Care Act (ACA). The effect went into place on January 1, 2019, meaning that those who were uninsured in 2019 no longer had to pay tax penalties, but those who were uninsured in 2018 still had to pay the fine.

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Before 2019, the Affordable Care Act required U.S. taxpayers to sign up for health insurance coverage or face penalization come tax time. Many who wanted to avoid the tax penalty chose to apply for a valid exemption or enroll in a qualified health plan in time for tax season.

For those who remained uninsured for part of the calendar year, some remained exempt due to their uninsured status being less than three consecutive months. Others were exempt from penalties due to their part in a federally recognized Native American tribe, a grandfathered plan or a Health Care Sharing Ministry (HCSM).

In 2023, you are no longer required to pay a federal tax penalty for remaining uninsured. However, that may not apply to you if you live in a specific state. For those in California, you are still required to have health insurance and could be subject to a fee should you remain uninsured.

What Is the Health Insurance Penalty in California?

The annual financial penalties for not securing health insurance have seen a steady upswing over the years. Opting out of a California-recognized ACA health insurance scheme might mean paying these penalties. Here’s a historical look at the penalties:

• In 2015, adults were fined approximately $325 while children were fined around $162.50, or 2% of the taxable household income, subtracting the federal tax-filing threshold.

• The 2016 penalty amounted to $695 for an adult, $347.50 for a child, or 2.5% of your taxable income less the federal tax-filing limit.

• Between 2017-2018, the penalty surged to $695 per adult, $347.50 per child, or 2.5% of your taxable income after subtracting the federal tax-filing threshold, with an additional COLA.

• In 2019, those without insurance saw a respite with the suspension of tax penalties.

• From 2020 to 2022, California reinstated the requirement for taxpayers to have health insurance or face penalties. The penalties could be around $800 per adult, $400 per child, or a required 2.5% of your gross income above the filing threshold. The higher amount would apply.

• In 2023, the penalty was fixed at $850 per adult, $425 per child, with a yearly cap of $2,550.

What Are My Options for Complying With Obamacare?

You have options when it comes to complying with Obamacare:

• Get no insurance: You’ll still have to pay the penalty at tax time in California. Consider carefully before choosing this option.
• Get cheap insurance: Remember that a cheap insurance plan often won’t meet minimum essential benefits requirements, and you might still have to pay the penalty at tax time.
• Enroll in a qualified health plan: This option does not have to be through Covered California to avoid the penalty, but it must be a Covered California plan to qualify for a government subsidy.
• Enroll in a Health Care Sharing Plan (HCSP): An HCSP exempts you from the tax penalty and may offer lower premiums than traditional health insurance plans.

Health Insurance Penalty Options

Because penalties may be comparatively low, some California residents opt to pay the fine and go without health insurance coverage. Another option some choose is to get cheap coverage, or one that won’t meet the minimum essential benefits requirements and still pay the penalty. In many cases, it may be beneficial to compare your penalty for remaining uninsured versus paying health insurance plans monthly.

For example, if in the tax year 2015, you were single, aged under 65, had a taxable income of $50,000 and were uninsured the whole year, your penalty would have been calculated as follows — The greater of $395 or $50,000 income minus $10,150 Federal Minimum Threshold, equals $39,850 x 2% and equals a $797 penalty. In this scenario, your tax penalty would be $797.

If you remained uninsured in 2017, your penalty would go up to approximately $996 depending on the Cost of Living Adjustment and the Federal Minimum Threshold. At $996 per year, that is only about $83 per month.

If you compare that penalty with paying a theoretical $375 a month for a Covered California plan, it may make sense to pay the tax penalty for no health insurance. However, in 2023, the cost of paying monthly health insurance versus paying a fee at tax time is something that should be weighed and calculated carefully.

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Health for California Insurance Center has operated in California since 2004. We are a health insurance agency dedicated to helping residents locate and purchase the right health insurance plans that fit their needs. Our agents are licensed through the California Department of Insurance and Covered California, and they understand the ups and downs of healthcare reform and how to help you make the best decision for you or your family.

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