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Obamacare’s tax penalty for not having qualified health insurance is hitting lower- and moderate-income households harder, the Department of Health and Human Services says, citing Internal Revenue Service data.
In 2015, nearly 6.7 million people paid more than $3 billion in penalties for not having coverage as required under the Affordable Care Act, the HHS said in a release Sept. 22. Thirty-seven percent of penalized households had incomes below $25,000, 79 percent of penalized households had incomes below $50,000, and 92 percent of the penalized households had incomes below $75,000, the HHS said. The agency released the data as congressional Republicans gear up for another effort to repeal the health-care law.
The individual mandate with its associated penalties has been one of the most controversial provisions of the ACA, prompting a landmark U.S. Supreme Court ruling in 2012 that left most of the law intact. Health insurers and ACA supporters say the mandate and penalties are needed to push healthy people to sign up for coverage, but ACA opponents have argued that the penalty hasn’t been successful in getting people to sign up for coverage, especially if they don’t receive much in subsidies.
The individual mandate penalty in 2017 is $695 per adult, $347.50 for children under 18, or 2.5 percent of household income, whichever is higher, to a maximum of $2,085.
There are 14 hardship exemptions from the individual mandate penalty, Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, told Bloomberg BNA in an email Sept. 25. The American Action Forum is a center-right policy think tank, and Holtz-Eakin has been critical of the ACA.
Under the Trump administration, the IRS canceled plans to begin rejecting tax returns on which filers don’t check a box indicating whether they had health insurance, which could make it more difficult to enforce the penalty. However, “There’s no evidence yet, at least, nothing systematic that I’ve seen,” that the Trump administration will be as lenient as the Obama administration in enforcing the individual mandate penalty, Holtz-Eakin said.
The data that HHS analyzed was released in August, according to the IRS.
The HHS analysis, however, doesn’t tell the entire picture because it only focuses on the number of households that were penalized, Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said.
“They’re manipulating the data to make it look like the ACA is unfairly imposing taxes on low-income people,” Gleckman told Bloomberg BNA. “When in fact, if you look at the overall law, most of the benefit goes to low-to-middle income people. Most of the tax increases are paid by high income people.
“It seems irresponsible to simply talk about penalties low-income people pay without talking about the subsidies they get because it’s all part of the package,” he said.
Also, the ACA has other levies, such as the net investment and Medicare surtax, that hurt high-earners, Gleckman said.
In 2015 the IRS reported that 12.7 million taxpayers claimed exemptions from the penalty, and 6.5 million taxpayers “reported a total of $3.0 billion in individual shared responsibility payments” or penalties, according to a January letter from IRS Commissioner John Koskinen to Congress.
Congressional Republicans have suggested changing the individual mandate to a continuous coverage requirement, similar to what is used in Medicare coverage, under which people would pay a premium surcharge if they didn’t have coverage.
“We believe that everyone should have access to affordable coverage including those with preexisting conditions,” America’s Health Insurance Plans spokeswoman Kristine Grow said in an email to Bloomberg BNA Sept. 25. “Those protections should be coupled with continuous coverage solutions to encourage everyone to participate in the market.”
“We need to have a balanced risk pool in order to have a stable market and support the law’s provisions that prohibit insurers from denying coverage or charging higher premiums due to pre-existing health conditions,” Cori Uccello, senior health fellow with the American Academy of Actuaries, told Bloomberg BNA in an email Sept. 25. “Along with the premium subsidies, the individual mandate was included in the law to help achieve those objectives.”
It could be helpful to dig deeper into the IRS data on the individual mandate penalty to get a better understanding of who paid the penalty, whether they qualified for the ACA premium tax credit subsidies, the premiums they would have faced, whether they could have been exempt from the penalty, and how the penalty payments have changed over time as people became more aware of the program and the penalty increased, Uccello said.
To contact the editor responsible for this story: Kendra Casey Plank at firstname.lastname@example.org
The IRS data is at https://www.irs.gov/statistics/soi-tax-stats-historic-table-2.Information on the individual mandate penalty is at https://www.healthcare.gov/fees/fee-for-not-being-covered/.Information on individual mandate penalty exemptions is at https://www.healthcare.gov/health-coverage-exemptions/forms-how-to-apply/.IRS Commissioner John Koskinen's January letter to Congress is at https://www.irs.gov/pub/newsroom/commissionerletteracafilingseason.pdf.
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