Governor Newsome Drives Legislation to Support Covered California
California Gets New Subsidies and a Penalty to Shore Up Obamacare in California
In late June, California Governor Gavin Newsome signed the state’s fiscal year 2019-2020 budget, which increased premium subsidies in California for the next three years.
In short, the following changes will be implemented between 2020 and 2022:
- Increased subsidies for some individuals at or below 138% of FPL
- Increased subsidies for individuals between 200% and 600% of FPL
- State penalty for the uninsured
These pre-tax subsidies lower the cost of health insurance for eligible individuals with incomes at or below 138% of the Federal Poverty Level (FPL) and above 200% up to 600% of FPL.
The new state penalty for the uninsured begins January, 2020. This penalty closely mirrors the federal penalty of the Affordable Care Act prior to the penalty being “zeroed out” by Congress.
Former Governor Brown set the budgets very tight in his efforts to get California in the black financially. Things are now going much better in California largely due to Brown’s efforts.
Governor Gavin Newsome is not as tight with the money and more focused on spending to help Californians. One of his first efforts when he got into office was to shore up Obamacare and support the Covered California state exchange.
For 2020, the budget allocates $428 million to increasing the subsidies. 17% ($72,866,930) will go to increase subsidies for those between 200% and 400% of FPL.
The lion’s share of the other 83% ($355,762,070) will add subsidies for those between 400% and 600% of FPL. This group of Californians, which has been the lowest income group not receiving discounts, has struggled the most with affordability.
A smaller portion of the 83% will be going toward a small segment of the population between 0 and 138% of FPL. This group includes legal immigrants who do not qualify for Medi-Cal (the Medicaid program in California).
State officials and those at Covered California hope that the increased subsidies will help Californians swallow the bitter pill of the new penalty. The state exchange has done research and found that the penalty is not popular, so in Covered California advertisements you are likely to only hear quick references to the penalty and see more of a focus on the increased subsidies.
However, experts agree that the penalty is necessary to maintain affordable health care in the golden state. When the Trump Administration and Congress zeroed out the penalty in 2018, insurance carriers in California responded with an 8% average rate hike across the state.
Medical insurance providers see the penalty as necessary in order to keep a healthier pool of insured people in the individual health insurance market. This measure has given carriers across the state increased confidence in the market, and they have responded by basically keeping their rates the same. Across the state for 2020, there is a low average rate increase of only .8%.
Also, Oscar Health Care has taken this as their signal to make a move to grab more market share, and they have decreased their rates so that in all or almost all of their regions they have the lowest priced Silver and Bronze Plans.
In light of the new penalty, Anthem Blue Cross, after dropping out of most individual markets in 2019, has decided to expand in California for 2020.
Thus, the result of the penalty is that almost all individual markets in California have at least 2 choices of health plans. The penalty is expected to keep healthy individuals in the pools, increase competition and increase the affordability of health care in California.
In 2020, Californians will be getting subsidies from the state and the federal government. In 2021, the state subsidies will be reconciled at tax time just like the federal subsidies. The penalty goes into force in 2020 and will be paid in 2021 on state taxes.
1.5 billion dollars will be paid out in state subsidies between 2020 and 2022. Nearly 1 million people will be eligible for these new subsidies.
This is the only state affordability program in the country that helps middle income individuals and families pay for their health coverage. Consumers who earn up to 600% of FPL (incomes of $75,000 for individuals and $150,000 for families of four) are eligible to receive assistance as long as they enroll through Covered California.
The state individual mandate and the penalty go into effect on January 1, 2020.