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Monday, October 04, 2010
Health care reform evaders: How the uninsured will be caught
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In 2014, we’ll enter a brave, new world. Health insurance will no longer be a luxury. It will be a requirement. Health care reform will be almost fully phased in, and every man, woman and child in the United States will be required to maintain health insurance coverage – with only a few exceptions.
In an attempt to make the transition easier, the federal government will set up health insurance exchanges, offer coverage subsidies and make group health plans mandatory at big businesses.
In case the carrot approach to encouraging compliance doesn't work, the federal government is ready to pull out the stick. The “individual mandate” law includes penalties for people without health insurance that start at $95 or 1 percent of an individual's annual income for the first year and rise until they hit $695 or 2.5 percent of annual income, whichever is greater. For families, the penalties for not buying health insurance coverage could reach $2,085 per household per year.
Enforcing mandatory health insurance coverage
How will the government identify the many people who are certain to either ignore the “individual mandate” law or simply remain unaware of it? If the IRS knows, it's not saying. According to an IRS spokesperson, rules and regulations on enforcement have not been developed yet.
What is known is that although the IRS has been appointed enforcer of the insurance mandate, it apparently plans to rely heavily on health insurance companies for tracking. Speaking to reporters in April, IRS Commissioner Douglas Shulman indicated that health insurance companies will eventually be required to submit paperwork similar to 1099 forms each year for everyone they insure.
According to a Bloomberg Businessweek report, those not complying with the insurance mandate will receive letters from the IRS notifying them that penalties may be deducted from any expected tax refund. The bigger issue may be how the IRS plans to enforce the mandate for those who aren't owed a refund or who don't file taxes at all.
Outside the Washington Beltway, many observers wonder if enforcement will really have any teeth. Oklahoma State Insurance Commissioner Kim Holland told an audience at the University of Oklahoma-Tulsa, "As it stands today, I don't think this mandate is enforceable." In remarks reported by Tulsa World, Holland went on to explain, "The penalty will be collected by the IRS, but it took away the IRS tools to enforce the law. They cannot fine you an additional amount. They can't charge interest, and they can't file a lien on your home."
Lack of money could hamper enforcement
Darrin Mish, a Florida-based tax attorney, has been following the discussion on mandatory health insurance with interest. "This is unlike anything [the IRS] has done before," he says. According to Mish, the biggest challenge to enforcement may be the lack of additional funding appropriated to the IRS to carry out its heath care reform duties. "Historically, Congress always knee-caps [the IRS] and doesn't give them what they need to get the job done."
It is expected that the IRS will begin the process of promulgating rules for enforcement of the individual mandate as early as next year. Only then will the process for reporting, tracking and enforcing the health insurance coverage mandate be known. As Mish reminds taxpayers, "Just because they don't know [how to enforce] now, doesn't mean they won't figure it out later."
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