IRS Enforcement of ‘Individual Mandate’ May Be Light
One of the most debated parts of the health care law is the requirement that most Americans buy insurance starting this year. If they don’t, they face a fine of $95 or 1 percent of their income, whichever is more.
But it’s not clear that the IRS will deploy much in the way of resources to aggressively search for individuals who don’t get coverage this first year. Enforcement of the individual mandate likely will be a huge challenge for the agency, both because of the difficulties in figuring out who doesn’t have insurance and the political problems it would pose for the Obama administration.
“I’d be very surprised if there’s much in the way of enforcement. It just doesn’t seem plausible,” said Federal Policy Group Managing Director Ken Kies, a former top congressional aide. “The IRS is in a tough spot. They don’t have the resources to do this. This is a whole different responsibility for them they never had before.”
The insurance requirement has never been popular in polls, and congressional Republicans have made it a major issue. This month, House Republicans unveiled a bill (HR 4064) to delay the requirement, often called the “individual mandate.”
But it’s not clear if a postponement is even needed given the realities faced by the IRS and the fact that many people will be exempt.
The first question: How will the agency know if someone didn’t have health coverage in 2014? The simplified answer: Taxpayers will tell them. If confused or dishonest taxpayers don’t report it accurately, chances are the IRS will not know right away.
Even if the Obama administration wanted to track down every person who did not have coverage in 2014, the agency will not have all the data it needs to accomplish that. This year the IRS is not expected to have any massive database pinpointing which taxpayers have coverage. With 140 million tax returns to process, the agency will need to primarily rely on self-reporting the first year.
“Individuals will report their own coverage on the 2014 income tax return that they file in 2015,” wrote IRS officials in an emailed response to questions. “The accuracy of the information shown on the tax return is the responsibility of the taxpayer.”
The exchanges also will report who’s on their insurance rolls, but the Congressional Budget Office projects that will only account for about 6 million Americans.
This situation is expected to just be temporary, though — there will be more detailed reporting by employers and insurers in later years that will give the IRS a fuller picture of who’s insured.
The law’s authors and regulators also allow for a long and growing list of exemptions to the mandate, making the IRS enforcement duties more complex. The latest came when the administration exempted people whose health insurance policies were canceled because the coverage did not meet benefit requirements under the health care law.
A few of these exemptions — such as a waiver for people with a religious objection to health coverage or financial hardship — require individuals to get certificates from the new marketplaces.
For some others — such as people who are in the country illegally or have a short health coverage gap — it will be reported on 2014 tax forms. That means those taxpayers will be claiming an exemption on their own.
The 2014 forms aren’t public yet and probably won’t be issued in draft form until at least the summer. It’s not clear what kinds of documentation will be required of those Americans who believe they are exempt.
Other problems could abound. Taxpayers could make mistakes. Tax prep service officials and accountants are eager to see more details on how consumers should report coverage next year so they can prepare themselves and their customers.
“We tell the IRS, the more you can tell us, the more we can help taxpayers,” said Theresa Pattara, director of regulatory affairs and public policy of H&R Block.
Some exemptions involve details that could baffle taxpayers. The definition of health care coverage itself could confuse some people.
Consumers also may be startled if they find they owe the IRS money because they got deeper discounts on their subsidized health insurance than they should have. That’s due to a related section of the law also administered by the IRS.
Many people who buy insurance on their own will qualify for tax credit subsidies extended under the law that help them buy plans in the new marketplaces. People get the money upfront as a discount that lowers their monthly insurance premiums when they buy insurance through the marketplaces. The federal funding is for people with incomes between the federal poverty line ($11,490 a year for one person) and four times the poverty line.
But the tax credit is a projection based on what people think they’ll earn, which could end up higher or lower than expected. If consumers don’t report income changes, they could get higher subsidies than they are entitled to receive.
Congress gave the IRS tools to enforce these two parts of the law — the individual mandate and the tax credits. But the tools are quite different.
For the fines for people who do not buy insurance, the agency was not authorized by Congress to do much more than send letters demanding the money and take the penalties from any refunds the taxpayers may be owed. That’s not insignificant, because most Americans get refunds. The IRS can capture that money owed whenever a taxpayer is due a refund, even in future years.
And while the IRS may not hunt for people who mistakenly or deliberately did not report a lack of coverage in 2014, officials may find some of them during audits for other reasons.
But people who owe fines for not getting health coverage cannot be thrown in jail. The agency can’t impose a lien on your property or a levy to take it away.
However, for any subsidy overpayments, the IRS can use liens and levies.
Nonetheless, most Americans do not want to risk running afoul of the IRS, which can add interest to debts and pursue perjury charges if people lie.
“The vast majority of taxpayers properly file their tax returns and pay what they owe in a timely manner,” IRS officials wrote to CQ Roll Call. “By doing so, taxpayers avoid paying additional amounts.”
If the IRS were to really go after people who did not buy coverage this year, it would create yet more bad publicity just as the Obama administration is recovering from the flawed rollout of the federal exchange website that is handling enrollment for 36 states this year.
“Because things were slow to get put into place, it’s likely they’d take a lighter approach to enforcement at first,” said Gary Claxton, vice president of the nonpartisan Kaiser Family Foundation. “The evidence won’t be as clear and the penalties are lower than in later years.”
In addition, administration officials seem to be aware that many taxpayers are still learning the details of the law.
“It’s not about getting the money,” said Claxton. “It’s about getting people’s attention.”