What Does the ACA Individual-Mandate Repeal Mean for Covered California?

Younger and healthier people may decide not to keep their health care coverage

By Toni Vranjes January 19, 2018
What Does the ACA Individual-Mandate Repeal Mean for Covered California?

Now that the Affordable Care Act's (ACA's) individual mandate has been repealed by federal tax legislation, what's next for Covered California?

The ACA created the individual mandate, which requires most Americans to have health coverage or else pay a tax penalty. Covered California, the state's health care exchange, was developed under the federal ACA to provide residents with access to low-cost coverage options.

Under the tax bill signed by President Donald Trump in December 2017, the individual mandate will be a thing of the past. According to lawyers, the repeal has led to much uncertainty for Covered California. The questions are:

  • By how much will premiums increase?
  • Which insurers will remain in the exchange?
  • Will California enact a state tax penalty for those without coverage to fill the void?
  • Will the state try to replace Covered California with a universal health care system?

Covered California

The state exchange has helped dramatically reduce the uninsured population in California, according to a December 2017 press release from the exchange. Since 2014, more than 3 million people have bought health insurance through the state exchange and nearly 4 million have enrolled in the state Medi-Cal program for low-income earners, the press release stated. This has led to a reduction in the rate of the uninsured in the state from 17 percent in 2013 to 6.8 percent as of last June.

"We are taking a look at the potential impacts of the tax bill and what it could mean," Covered California spokesman James Scullary told SHRM Online.


The individual mandate is intended to spur younger and healthier people to get insurance. Without the mandate, Covered California likely will have a higher share of older and sicker enrollees—causing premiums to rise.

[SHRM members-only toolkit: Communicating with Employees About Health Care Benefits Under the Affordable Care Act]

"Without the individual mandate, there is not the coercive effect on people who would rather not have health insurance to get health insurance," said Adam Abrahms, an attorney with Epstein Becker Green in Los Angeles.

Timothy Verrall, an attorney with Ogletree Deakins in Houston, said the change probably will siphon off people who currently support the system by paying money but making few claims.

It's likely that coverage will be more expensive, said Mark Grushkin, an attorney with Littler in Los Angeles.

State officials announced this summer that Covered California premiums will increase by an average of 12.5 percent in 2018. "The expectation is that it would go up higher for 2019," Abrahms said.

However, California has been taking steps to bolster the exchange. State officials have tried to prop up the system through aggressive marketing campaigns and other strategies, Abrahms noted. This could drive people to have health insurance regardless of whether it's legally required.


Risk pool changes could drive some participating insurers out of the exchange, Abrahms said.

Covered California recognizes the threat. In its press release, the exchange stated: "Health insurance companies rely on certainty when setting their rates and may decide to exit their markets in the face of an uncertain market caused by a shrinking pool of consumers who are less healthy."

But it's still unclear whether insurers will actually do that, given the size of the California market. "It's a very large market to abandon," Grushkin said

The state's marketplace is competitive, and it hasn't experienced the same volatility as some other regions in terms of insurers withdrawing, Scullary noted.

State Tax Penalty

The state could try to pass its own tax penalty for not obtaining health coverage, said Tiffany Downs, an attorney with FordHarrison in Atlanta. That would create an individual mandate on the state level.

Downs pointed to a Massachusetts state tax penalty as an example of what states can do. According to WBUR News, the Massachusetts state tax penalty will stay in place even though the federal individual mandate has been scrapped.

There would likely be challenges to a proposed California mandate, though, and approving a state tax penalty would require a two-thirds majority in the state legislature.

Universal Health Care

The ACA individual-mandate repeal also could lead to more support for universal health care. S.B. 562 passed the state senate last June, but Assembly Speaker Anthony Rendon, D-Paramount, blocked the bill, citing his opinion that the bill was "woefully incomplete." The California Nurses Association sponsored the bill, and the group has vowed to continue fighting for universal health care.

The individual-mandate repeal "increases the possibility" that a universal health care plan gets through the California Legislature, according to Abrahms.

HR's Role

HR professionals should revise their communications to participants and let them know that the individual mandate will no longer exist as of 2019, according to Grushkin.

Participants should also know that they're still subject to the federal tax penalty for 2018, Downs said. The penalty will have to be paid in 2019 for those who don't have health coverage in 2018.

Despite the repeal of the individual mandate, the employer mandate is still in effect. This requires companies with 50 or more full-time equivalent employees to offer health coverage.

"As of now, the employer mandate is still law," Abrahms said.

Toni Vranjes is a freelance business writer in San Pedro, Calif.

Related SHRM Resource:

SHRM Health Care Reform Resource Page


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