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March 30, 2010

IRS to enforce health coverage with "honor system"

Much hot air has been blown about the tyranny that will ensue once the Internal Revenue Service starts enforcing the requirement in Obamacare for almost everybody to have health insurance coverage. Republicans hallucinated about the "15,000" IRS agents that would enforce the law. People went on about "brownshirts" etc. Actually, the enforcement provisions look too weak. The only way this plan is going to work is if young people sign up to subsidize the older and sicker. But the risks of not buying health insurance look minimal.

First, the penalties to be assessed are probably far less than what coverage will cost. Second, it looks like the IRS is not exactly going to be keeping a hawk eye. This accounting blog says it'll basically be an honor system. Libertarians (!!) Megan McArdle and Tyler Cowen suggest the mandate is too weak.

Here is a description of the penalties from the Joint Committee on Taxation:

The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
Posted by Jay Hancock at 8:53 AM | | Comments (4)
Categories: Health Care
        

Comments

Jay,

The great paradox of the health insurance (HI) mandate is that it presumes people will pay this bill while at the same time people will not pay an ER bill.

In other words, how is it possible for Uncle Sam to collect mandated HI payments from millions of young people but it is not possible for it to collect payment from millions of people who skip payment on their hospital bills?

Once again we are seeing government choose to fail at a new problem because it cannot or does not want to solve an existing one.

Jay,
Your comment seems to presume that the enforcement provisions won't change. If it's more affordable to avoid buying insurance, while still getting care, and the value of HCR depends on the healthy joining the risk pool, then the cost of HHR will continue to rise until "something is done to make everyone pay their share". Rest assured, the enforcement provision will change.

While this honor system may be an approach to not anger opponents to the bill, it is not an effective approach to ensure that sufficient numbers of people are getting insured so that the insurers have the pool over which to spread the costs. Without enforcement and a stronger mandate, people will, in many cases, simply look at the two cost options and decide not to get insurance. The result will still mean large increases for those who need insurance.

Very interesting. I know the jail provisions were stripped out relatively last minute but this was the first I'd heard it was effectively toothless. Do you know if they can at the very least attach/deduct from a tax return owed to you?

Someone else had suggested just pay the fine and then exploit the no ban on denial for pre-existing conditions loophole, I suppose depending on how fast you can get a policy in effect. I'm just imagining sitting in a waiting room with a broken leg on my cell phone with an insurance company signing up for a new policy.


Last question, do you know if when the ban on pre-existing conditional denial goes into effect, will it be like it is for what is in effect now for those under 18? From the NYT:

"The new law says that health plans and insurers offering individual or group coverage “may not impose any pre-existing condition exclusion with respect to such plan or coverage” for children under 19, starting in “plan years” that begin on or after Sept. 23, 2010.

But, insurers say, until 2014, the law does not require them to write insurance at all for the child or the family. In the language of insurance, the law does not include a “guaranteed issue” requirement before then."

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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