Penalty Enforcement for Failing to Meet the Individual Mandate under Obamacare: To Comply or Not to Comply?

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Penalty Enforcement for Failing to Meet the Individual Mandate under Obamacare: To Comply or Not to Comply?
COLLAPSE
Top of Form
Background
One of the cornerstones of the Patient Protection and Affordable Care Act, aka Obamacare, has been the Individual Mandate, a requirement for all Americans to acquire some sort of qualifying health insurance coverage. Also known as a “Shared Responsibility Payment”, the manifestation of failing to meet the Individual Mandate is a tax penalty. This penalty was the greater of $95 or 1% of household income in 2014 for those who didn’t obtain insurance, rose to the greater of 2% of household income in 2015 for failing to so and finally rose to 2.5% of household income or the greater of $695 in 2016 for not obtaining the required qualifying insurance coverage. [1], [2]
The problem being juxtaposed herein is the enforcement of the tax penalty itself for those who fail to obtain qualifying insurance coverage.
Articles Summaries:
“Will Only Suckers Pay the Obamacare Tax Penalty?”, by John Merline [3]
In this article, the author contends for a variety of reasons that it’s less complicated for the individual taxpayer to merely ignore paying tax penalty than to comply with the mandate. The basis for the author’s contending of this comes from the plethora of exemptions – he cites 19 – that exist for needing to obtain insurance, most of which require no paperwork at all to register for or to verify coverage. Furthermore, even if one does not qualify for one of the many exemptions for obtaining coverage, the only mechanism available for collection of the penalties under Obamacare is the collection via tax-return refunds.
The author iterates many reasons why this is a weak approach and a major reason for the weakness of the Individual Mandate and ultimately, Obamacare. What if a taxpayer does not receive a tax refund, now or in the future? Furthermore, to indicate that they were in fact covered with qualifying coverage, a taxpayer only need to check a box that says that coverage did exist with no qualifying documentation. The onus is then on the IRS to determine whether they were insured or not, an IRS he contends is dramatically overstaffed now, let alone with trying to enforce elements of Obamacare that will increase year after year. Finally, there is no criminal penalty for failing to pay the penalty, nor is there an ability for the IRS to levy liens or garnishments should they be able to determine or verify that someone lacked appropriate coverage. All of these points lead the author to conclude while the Individual Mandate is critical to the success of Obamacare overall, it is basically powerless to enforce since there are so many ways to circumvent the requirement, ultimately concluding that Obamacare could contain within its very requirements the “seeds of its own destruction”. For this reason, while he doesn’t specifically say that one SHOULDN’T pay it, he paints a detailed picture of why there really is no down side to NOT paying it, the title of the article refers to those who might as “suckers”, thereby a solid allusion to his point.[4]
“Can You Really Ignore the Obamacare Penalty?”, by Dan Caplinger[5]
In this article, the author offers a summary again of the scaled penalties imposed under Obamacare to those who do not seek qualifying coverage. He also asserts the same point as the previous author that the Individual Mandate is one of the most hotly contested elements of Obamacare and that it is a key element of the law. Where the thrust of his article differs from that of the other article, is that in spite of the current relative weakness of the IRS to collect the penalties generated from not obtaining qualifying insurance coverage under Obamacare, the taxpayer should think twice before circumventing payment. His main point is that when finally able to do so, the IRS will in fact swiftly collect the monies you are owed, with considerable penalties and interest. Further, as far as enforcement teeth, he also claims that in the future, the law may be amended to allow the IRS to levy not only back taxes owed, but other stronger enforcement tools. He concludes that given the rate at which penalties for failing to obtain coverage have grown, along with compounding penalties and interest, it is the consumer’s best interest to find a qualifying exemption or pay the penalty as imposed. He concludes that it is “far safer to than rolling the dice with the IRS…”[6]
2. Stakeholders: (The Political Stream) – **The Stakeholders predominantly overlap for both positions.
Those who don’t qualify for exemptions – They will have to choose between risking paying the penalty or not given the weaknesses in the current system.
Those who do qualify for exemptions – They may feel that they paid the penalty for nothing if others are “getting away” with it.
The IRS – Can they enforce the issue or not? And if they cannot, is it their fault for being under resourced for a huge new burden?
Proponents of ACA- Will the “toothlessness” of enforcement doom other provisions of ACA and encourage more people to skirt responsibility?
Future Beneficiaries of ACA – The administration is counting on the uninsured to pay $47 billion in penalties. If circumvention happens, how will this affect future funding of other provisions of ACA?[7]
The Problem Statements: (The Problem Stream)
Merline: How can Obamacare be relevant when there are insufficient tools and capability to enforce even the most basic cornerstones of the law?
Caplinger: Given the possibility that enforcement agencies will be granted further powers to enforce Obamacare, why would anyone circumvent compliance with basic principles of the law when there is much at stake for them?
The Solutions (The Policy Stream)
Merline: For consumers, focusing on individual benefit and without looking at the larger implication on the overall system, he strongly describes (just short of advocating) taking the risk and avoid paying the penalty. The plethora of exemptions and lack of needed documentation and the lack of IRS enforcement capability makes it to easy to not to. At a minimum, he points it out as a huge flaw of Obamacare, harkening its demise.
Caplinger: For consumers, exercise compliance by either finding an appropriate exemption or paying the penalty, as the future risks are too great.
5. Analysis & Opinion
I believe that while Merline’s problem statement may seem more attractive to those who are diametrically opposed to Obamacare, it also comes across to me as a “how to cheat on your taxes” manifesto. I agree with him that there are glaring holes in Obamacare and given the contentiousness of the Individual Mandate issue, it is very easy to point to it as a metaphor for “all things Obamacare”, I am not convinced that the “Problem” is defined in his article well enough by pointing out that those who would pass up exploiting the system, as glaring as the shortcoming are, as suckers. One can always cheat on their taxes and that doesn’t make it right or productive for society, in spite of low risk of being caught.
I believe that Caplinger’s advice seems somewhat naïve given the reality of the enforcement options available and a mere “You may get caught later” advisory is not enough to substantially dissuade those who would “cheat” not to. I would be more convinced on the strength of his point if he underscored the cost vs. benefit of compliance to society and underscored greater potential risks than potential strengthening of one agency.
Revised Problem Statement (Potential “window of opportunity”)
“Given current analysis of compliance trends with penalty enforcement under ACA for the Individual Mandate Requirement, what otherenforcement options are now available after lessons learned under Obamacare after three years of ACA?”
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