Budget Deal’s Big Health Care Changes: Middle Class Subsidies On Covered California, And A State Individual Mandate

California lawmakers are expected to approve a state budget Thursday that would make the state the first in the nation to help middle-class consumers purchase health insurance on Covered California, the state’s health insurance exchange created under the Affordable Care Act.

Gov. Gavin Newsom’s Department of Finance and Covered California both say the $429 million in subsidies are still being designed and calculated. But, depending on factors that include location and cost of health insurance coverage, the average subsidy will be more than $100 a month.

But to help pay for the new subsidies, the budget crafted by Newsom and Democratic legislative leaders would create a state health insurance mandate, replacing the federal fine for not carrying insurance that was terminated two years ago.

That means starting next year, if you can afford health insurance but choose not to get it, you’ll be charged a $695 penalty or 2% of your household income — whichever is larger — when you pay your taxes. The fine is half as big for minors without insurance.

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The subsidies, which will become available in January, are targeted at Californians who earn between 400 and 600% of the federal poverty level. That’s between roughly $50,000 and $75,000 for individuals and between $103,000 and $155,000 for families of four.

Under the Affordable Care Act, consumers who earn more than 400% of the federal poverty level don’t get any help purchasing health insurance on the individual market.

Some middle class Covered California consumers, could save up to hundreds of dollars a month, said Executive Director Peter Lee

“People that under the Affordable Care Act got no help — middle-class Californians paying a huge share of their income towards premiums — are going to get big assistance to make health care truly affordable for them,” Lee said.

There’s also money in the state budget deal for lower-income Covered California consumers, though not as much.

“California is saying, let’s take the Affordable Care Act and build on it, and make health care more affordable for middle-class Californians, and even more affordable for people already getting subsidies — because health care is too expensive,” Lee said.

But Republican Assemblyman Jay Obernolte questions whether the proposal will actually work and says the state should “be very cautious.”

“I understand and agree with the premise, which is to make sure that more Californians are covered by health insurance,” Obernolte said. “Unfortunately, it’s not clear to me that there’s any statistical evidence that extending these subsidies to the income ranges the governor’s proposing would have that effect.”

Under the Covered California subsidies and individual mandate provisions of the budget deal — some of which have yet to emerge publicly — the state is projected to bring in more than $1 billion over a three-year period.

That revenue, along with additional permanent spending from California’s general fund, will fund new state aid for consumers at three different income levels starting in January.

Here’s how the $429 million in state spending on the new Covered California subsidies will be broken down in 2020:

• $10 million in subsidies for a relatively small group of Californians who earn between 0 and 138 percent of the federal poverty level — up to about $17,000 a year for individuals — yet must obtain insurance via Covered California because they’re not eligible for MediCal. Their subsidies will bring their monthly premiums down to $0.
• $74 million in additional state aid for Californians who earn between 200 and 400 percent of the federal poverty level — between roughly $25,000 and $50,000 a year for individuals — on top of their existing federal subsidies. That’s projected to reduce an average consumer’s premium by a further $10 a month.
• $345 million in subsidies for middle-class consumers who earn between 400 and 600 percent of the federal poverty level — between about $50,000 and $75,000 a year. Those Californians, who are not eligible for any subsidies under the Affordable Care Act, are projected to save an average of at least $100 a month on their premiums.

Lee says health care costs for all Californians are projected to drop between 3 and 5 percent because the individual mandate will broaden the insurance pool.