United States

Can the IRS enforce the individual mandate?

If not, will health insurance markets suffer?

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The Affordable Care Act makes health insurance coverage mandatory to prevent individuals from delaying the purchase of insurance until they become ill and then taking advantage of the fact that they cannot be denied coverage because of a pre-existing condition. Without such a rule, insurance premiums might skyrocket, driving the individual insurance markets into a death spiral.

Unfortunately, the annual tax penalty for violating the individual mandate may be very difficult for the government to enforce. The IRS is charged with collecting the penalty, but may only collect it out of an individual’s tax refund check. If the taxpayer has no refund due, the penalty cannot be collected or otherwise enforced. As a result, some individuals who want to avoid buying insurance may decide to reduce their wage withholding to eliminate their refund, and thus avoid the penalty. If this becomes a common practice, this aspect of the law may need to be changed.

A more practical approach would eliminate the role of the IRS and make the penalty amounts collectible by the insurance companies, in arrears, if and when an individual decided to purchase a policy after a break in coverage. A similar approach is already used by Medicare for individuals who reach age 65 but delay their enrollment. This approach may also be attractive to those who object, philosophically, to the idea of a governmental mandate to purchase a commercial product.

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