Thursday, April 29, 2010

The IRS and the Individual Mandate: Annoying Taxpayers, Raising Premiums

USA Today has a story out this morning on the individual mandate and the IRS’ role in implementing the health care law.  Several experts are quoted as saying that with respect to the new individual mandate to purchase government-approved health insurance, the IRS “will be sending notices that will annoy people” without any follow-through, and that “the IRS’ hands are tied, to a considerable extent.”  In short, the mandate is “basically designed for failure.”  And even liberals agree that a failed mandate would result in higher premiums, as healthy people would shun coverage until they become sick, knowing they could obtain coverage once they do.

In response, IRS Commissioner Doug Shulman argues that compliance with Massachusetts’ mandate shows that most citizens will comply with the law.  But as the article points out, Massachusetts’ Department of Revenue has its full authorities – including the powers of imprisonment – available to force citizens to buy government-approved insurance, powers not available to the IRS under the national statute.  More importantly, data from multiple insurance companies in Massachusetts show that many people are paying the tax associated with the mandate while healthy, only to obtain coverage and run up high health costs once becoming sick – placing more upward pressure on insurance premiums.  If this is success, what exactly constitutes failure?

So in sum: Either the IRS, in addition to just “annoy[ing] people,” can use more heavy-handed tactics to enforce individuals to buy government-approved health insurance they do not need or want, or premiums will rise for all Americans because healthy people will not buy insurance until they need it.  Once again, many may ask: How does this represent “reform?”

A final note: The article also examines the IRS’ ability to handle all the new tasks assigned to it in the law, and whether tax compliance efforts will suffer as a result.  It’s worth noting that in attempting to rebut concerns about fraud, the agency pointed out that the law does NOT provide tax cuts to individuals for the purchase of insurance: “The health care subsidies will go directly to insurers, not taxpayers, giving individuals little incentive to cheat, says IRS spokesman Frank Keith.”