Health Law Tax Penalty? Ifll Take It, Millions Say
By ROBERT PEAR
OCT. 26, 2016 - The New York Times
WASHINGTON
— The architects of the Affordable Care Act thought they had a blunt instrument
to force people — even young and healthy ones — to buy insurance through the
lawfs online marketplaces: a tax penalty for those who remain uninsured.
It
has not worked all that well, and that is at least partly to blame for soaring
premiums next year on some of the health lawfs insurance exchanges.
The
full weight of the penalty will not be felt until April, when those who have
avoided buying insurance will face penalties of around $700 a person or more.
But even then that might not be enough: For the young and healthy who are badly
needed to make the exchanges work, it is sometimes cheaper to pay the Internal
Revenue Service than an insurance company charging large premiums, with huge
deductibles.
gIn
my experience, the penalty has not been large enough to motivate people to sign
up for insurance,h said Christine Speidel, a tax lawyer at Vermont Legal
Aid.
Some people do sign up, especially those with low incomes
who receive the most generous subsidies, Ms. Speidel said. But others, she said,
find that they cannot afford insurance, even with subsidies, so gthey grudgingly
take the penalty.h
The I.R.S. says that 8.1 million
returns included penalty payments for people who went without insurance in 2014,
the first year in which most people were required to have coverage. A
preliminary report on the latest tax-filing season, tabulating data through
April, said that 5.6 million returns included penalties averaging $442 a return
for people uninsured in 2015.
With the health lawfs fourth open-enrollment season
beginning Tuesday, consumers are anxiously weighing their options.
William H. Weber, 51, a business consultant in Atlanta,
said he paid $1,400 a month this year for a Humana health plan that covered him
and his wife and two children. Premiums will increase 60 percent next year, Mr.
Weber said, and he does not see alternative policies that would be less
expensive. So he said he was seriously considering dropping insurance and paying
the penalty.
gWe may roll the dice next year, go without insurance and
hope we have no major medical emergencies,h Mr. Weber said. gThe penalty would
be less than two months of premiums.h (He said that he did not qualify for a
subsidy because his income was too high, but that his son, a 20-year-old barista
in New York City, had a great plan with a subsidy.)
Iris I. Burnell, the manager of a Jackson Hewitt Tax
Service office on Capitol Hill, said she met this week with a client in his late
50s who has several part-time jobs and wants to buy insurance on the exchanges.
But, she said, ghefs finding that the costs are prohibitive on a monthly basis,
so he has resigned himself to the fact that he will have to suffer the
penalty.h
When Congress was writing the Affordable Care Act in 2009
and 2010, lawmakers tried to balance carrots and sticks: subsidies to induce
people to buy insurance and tax penalties gto ensure compliance,h in the words
of the Senate Finance Committee.
But the requirement for people to carry insurance is one
of the most unpopular provisions of the health law, and the Obama administration
has been cautious in enforcing it. The I.R.S. portrays the decision to go
without insurance as a permissible option, not as a violation of federal
law.
The law grequires you and each member of your family to
have qualifying health care coverage (called minimum essential coverage),
qualify for a coverage exemption, or make an individual shared responsibility
payment when you file your federal income tax return,h the
tax agency says on its website.
Some consumers who buy insurance
on the exchanges still feel vulnerable. Deductibles are so high, they say, that
the insurance seems useless. So some think that whether they send hundreds of
dollars to the I.R.S. or thousands to an insurance company, they are essentially
paying something for nothing.
Obama administration officials say that perception is
wrong. Even people with high deductibles have protection against catastrophic
costs, they say, and many insurance plans cover common health care services
before consumers meet their deductibles. In addition, even when consumers pay
most or all of a hospital bill, they often get the benefit of discounts
negotiated by their insurers.
The health law authorized certain exemptions from the
coverage requirement, and the Obama administration has expanded that list
through rules and policy directives. More than 12 million taxpayers claimed one
or more coverage exemptions last year because, for instance, they were homeless,
had received a shut-off notice from a utility company or were experiencing other
hardships.
gThe penalty for violating the individual mandate has not
been very effective,h said Joseph J. Thorndike, the director of the tax history
project at Tax Analysts, a nonprofit publisher of tax information. gIf it were
effective, we would have higher enrollment, and the population buying policies
in the insurance exchange would be healthier and younger.h
Americans have decades of experience with tax deductions
and other tax breaks aimed at encouraging various types of behavior, as well as
gsin taxesh intended to discourage other kinds of behavior, Mr. Thorndike said.
But, he said: gIt is highly unusual for the federal government to use tax
penalties to encourage affirmative behavior. Thatfs a hard sell.h
The current questions about the tax penalty echo the
debate over the same issue when Barack Obama and Hillary Clinton were seeking
the Democratic presidential nomination in 2007 and 2008. Mr. Obama insisted that
Americans should not be required to buy health insurance. After six months in
office, he switched tack, saying he was gnow in favor of some sort of individual
mandate, as long as therefs a hardship exemption.h
Insurers say the penalty is necessary because healthy
holdouts destabilize the market. gWithout a strong incentive to maintain
coverage, individuals could forgo purchasing health insurance until they need
medical attention, driving up the cost of coverage for everyone,h says Americafs
Health Insurance Plans, a lobby for the industry.
The maximum penalty has been increasing gradually since
2014. Federal officials and insurance counselors who advise consumers have been
speaking more explicitly about the penalties, so they could still prove
effective.
Many health policy experts say the penalties would be more
effective if they were tougher. That argument alarms consumer advocates.
gIf you make the penalties
tougher, you need to make financial assistance broader and deeper,h said Michael
Miller, the policy director of Community Catalyst, a consumer group seeking
health care for all.