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Several states and the District of Columbia are taking pains to make sure the Individual Mandate under the Patient and Protection and Affordable Care Act (“ACA”) is here to stay. California, New Jersey, Rhode Island, Vermont, Massachusetts , and the District of Columbia have all adopted some version of this health insurance coverage requirement. This Individual Mandate does not just create requirements for individuals, it also creates new compliance obligations for employers as well.
What is the Individual Mandate?
The Individual Mandate generally requires individuals to purchase qualifying health coverage or pay a tax penalty, unless they qualify for an exemption. The Mandate forces people who might otherwise not buy health insurance to do so in order for health insurance to be more evenly spread amongst the pool of covered individuals, and not just the sick. Of course it also covers a healthy individual from an unexpected illness or injury. To avoid a health care tax penalty, the Individual Mandate requires individuals to submit proof of insurance with their tax filings.
As Vox reported in 2015, the Individual Mandate was a conservative policy proposal, presented in opposition to President Clinton’s unsuccessful health-care plan, which sought universal coverage and a basic benefits plan. The Individual Mandate was a key provision of the plan passed during Governor Mitt Romney’s administration in Massachusetts and remains in effect today. The ACA incorporated the Individual Mandate into its nationwide health care reforms. It took effect in 2014.
Why are states passing their own versions of the Individual Mandate?
In 2017, the federal government passed the Tax Cuts and Jobs Act. One critical effect of this massive tax reform legislation was to zero out the tax penalty under the ACA for individuals that failed to comply with the Individual Mandate or qualify for an exemption. The practical result is that the Individual Mandate under the ACA is still in effect, but without teeth to enforce it as of 2019. This is where states have stepped in. Without a federal incentive to obtain health coverage, many states feared that insurance carriers would pull out of their insurance markets. As a result, states have enacted their own, state-level versions of the Individual Mandate.
How do state-level Individual Mandates affect employers?
New Jersey provides a good example of how states have taken the issue of robust insurance markets into their own hands—creating additional compliance obligations for employers in the process. Employers, regardless of size, who offer Minimum Essential Coverage to employees will need to file their ACA information with the New Jersey Department of Treasury. This requirement is in addition to those of the ACA’s Employer Mandate, which applies only to Applicable Large Employers (organizations with 50 or more full-time employees and full-time equivalent employees) who are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties. Employers need to both furnish health coverage verification Forms 1095-C to their employees by March 2, 2020, and file Forms with the state.
California has adopted a similar approach to New Jersey. Additionally, for the 2020 tax year, self-funded employers in California will need to report on the employees that had health coverage throughout the year. The information must be furnished to employees by January 31, 2021 and filed with California’s Franchise Tax Board by March 31, 2021.
At this point it is unclear whether Rhode Island and the District of Columbia will follow the example set by California and New Jersey with regard to employer reporting obligations. Employers in these states should continue to monitor their state legislatures for updates. In Vermont, employers will have new coverage reporting obligations to the state only if the federal ACA reporting requirements are eliminated.
Employers nationwide should expect this trend of states adopting their own Individual Mandates to continue.
| State | Filing Deadline | Furnishing Deadline |
| California | March 31, 2021 | January 31, 2021 |
| New Jersey | March 31, 2020 | March 2, 2020 |
| District of Columbia | June 20, 2020 | March 2, 2020 |
| Rhode Island | March 31, 2021 | January 31, 2021 |
Employers should know that failing to comply with the state level ACA reporting requirements could be subject to penalties. These penalties are in addition to those imposed on employers that fail to comply with the ACA’s Employer Mandate, which the IRS is currently issuing for the 2017 tax year in Letter 226J.
In order to reduce the risk of any penalty exposure due to ACA non-compliance or for failing to file or furnish by the mandated state and federal deadlines, organizations should elect to undergo an ACA Penalty Risk Assessment to learn their penalty exposure and implement course-correction to avoid any future exposure.
