New health care reform law. Are we compelled to buy health insurance and what are the penalties?

A brief discussion at work where two people were claiming the new health care reform forced citizens to buy health insurance and were penalized , even with the potential of jail time, if they didn’t comply.
I understood it to be a tax incentive to buy health insurance.

are there legal penalties?

There are penalties, but there’s no criminal penalties. There’s certainly no jail time. The penalty is a fine. The provision is known as the “individual mandate”.

It works like this: if health insurance will not cost more than about 9% of your income, then you have to buy an insurance plan. If you don’t, you will have to pay a fine of either $695 or 2.5% of your income (whichever is higher), up to a maximum of $2085. It applies to families as well: if any of your family unit does not have insurance, you will have to pay $695 or 2.5% of your family unit’s income, per family member, up to a maximum of $2085. Most people buying on the individual market will get government subsidies to help them afford this insurance.

However, the enforcement for the fine is basically non-existent: it won’t become a criminal issue even if you refuse to pay it, and it won’t be subject to debt collection (ie. you would never have debt collectors calling about it, it can’t affect your credit rating, etc). Some people, like your friends, are criticizing the individual mandate for being too strict, but personally I think a bigger potential problem is that it might not be strict enough, and some people might just accept the small fine and game the system.

Just another point: this provision doesn’t kick in until 2014, and it starts at an even lower level than those figures I quoted above (I don’t think the fine gets up to $695 until about 2017).

How could they game the system by accepting a fine? Is the fine proposed to be something like a ticket?

In another thread tax breaks were mentioned, as in, you get an additional tax break for buying health insurance which would make it cheaper.

I don’t have time to read and digest 2000 pages. Is there a good site that covers the major points?

The penalty is less than the cost of insurance. And since you can’t be denied insurance for pre-existing conditions, some people still won’t get insurance until they need it.

I’d recommend wikipedia. Just start with “health care reform”, and it’ll take you there eventually.

The bill basically has 3 parts: firstly, there are new health insurance regulations which mean that insurers will now have to accept everyone who applies to them, even if they have pre-existing conditions. They can’t drop people or put their premiums up when they get sick. The problem with this is that if people know they can buy insurance as soon as they get sick, no one will buy insurance when they’re healthy. Insurers will just be stuck with lots of sick people, and they’ll bankrupt. To avoid this, the second part of the bill is the individual mandate, forcing everyone to buy insurance even if they’re healthy. But a lot of people can’t afford to buy insurance, so if you’re going to force them to buy it, you need the third part: government subsidies which help people pay for insurance. Additionally, the bill also has a bunch of cost controls (taxes and spending reforms) which will reduce the deficit.

For a lot of people, paying a $695 fine will be cheaper than buying insurance. So the problem might be that loads of healthy people pay the fine, then just buy insurance as soon as they get sick and still get the treatment.

There’s two things you might be thinking of: one is that people buying in the individual market will get government subsidies to help them pay for insurance, depending on income. (Some people might pay $1000 of their own money for a $2000 plan, for instance, with the government giving them the rest). The other is that small businesses will get tax credits to help them offer employer insurance for their employees.

The best I’ve seen is the Speaker’s own website, link here, which has lots of brief, easy-to-read documents summarizing the provisions in bill (scroll to the bottom of the page).

No enforcement and no attempt to collect the fine even when owed and overdue amounts to saying that paying the fine is optional. Can that really be right?

Seconded. I thought it was a tax, and thus would be on your income tax forms. While getting audited is rare, it does happen.

My own interpretation of the law has always been that an unenforced law is not really a law.

The tax penalties for folks without insurance don’t start for several years, and they’re phased in gradually. According to the NY Times:

Nobody’s being forced to buy anything. Nobody’s going to go to jail if you don’t have insurance. This would have been much more palatable if it were presented differently, ie, as a tax-credit for people with insurance. Because that’s what it really is.

People can do this today with employer provided coverage or Medicare. You can opt of of the signup when you start a job or hit 65 - the problem is that if you then get sick, you have to wait until the next Open Enrollment period. Depending on the timing of your illness or accident, this could be as much as a year that you would have to wait for insurance coverage.

How many people actually do that?

I expect that privately purchased insurance through a state exchange would be similar.

I thought this would make more sense too, and it’s possible because I’m not entirely sure how the fine is supposed to be paid. But it doesn’t seem like it: Democrats made a point of saying that there would be no debt collection for the fine, and that it would never become a criminal matter, even if you outright refuse to pay it. That doesn’t sound to me like a tax equivalent to an income tax. And I think that’s the whole point: people dislike the individual mandate enough as it is, without it being enforceable by federal debt collectors or the criminal courts. The idea is that people naturally like having health insurance (especially when it’s subsidized for them) and they don’t like paying large fines for no reason, so most people will sign up, even if some cold actuarial calculations might suggest otherwise.

I’d be surprised if the state exchanges will have these kind of enrollment periods. The whole point of the new insurer regulations is to let the market operate more efficiently and give the consumer more choice, as opposed to the present where people with pre-existing conditions effectively get ‘locked in’ to their plans because they can’t change. If the exchanges have the kind of long delays for enrollment you’re suggesting, it would still ‘lock’ people into their plans until the next enrollment at least, and it would mean insurers can’t pick up any new customers in the meantime. Customers wouldn’t like it and even the insurance companies probably wouldn’t like it, so I’m not sure who it would benefit.

There was talk about a religious exemption to buy insurance, did that make it in the final bill? I guess that would apply to Christian Scientists and others who don’t use modern medicine.

Yep. There’s exemptions for religious objectors, Indian tribe members, illegal immigrants and prisoners. You’re also exempt if your premiums would cost more than 9% of your income or if you’re only without coverage for less than three months of the year.

I won’t be - I think that there has to be some protection against the system being ‘gamed’. I think that existing precedents I mentioned may serve as a guide.

From page 85 of the bill (underline emphasis added):



Subject to subsections (b) through (e), each health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.


(1) RESTRICTION.—A health insurance issuer described in subsection (a) may restrict enrollment in coverage described in such subsection to open or special enrollment periods.
(2) ESTABLISHMENT.—A health insurance issuer described in subsection (a) shall, in accordance with the regulations promulgated under paragraph (3), establish special enrollment periods for qualifying events (under section 603 of the Employee Retirement Income Security Act of 1974).
(3) REGULATIONS.—The Secretary shall promulgate regulations with respect to enrollment periods under paragraphs (1) and (2).

That’s interesting, I didn’t know about those enrollment details before. You may be right. Personally I still think there’s some good incentives against insurers implementing long delays between enrollment periods: if you only enroll customers once a year or once every 6 months, you miss out on any potential business in the meantime, which your competitors without enrollment periods would be capitalizing on. The consideration on the other hand is, as you say, to stop yourself being ‘gamed’, but that’s what the $695 fine is supposed to be for, and the CBO for instance thinks the fine alone will work quite well. I think there’s a good incentive overall for an insurer to keep their shop open for business rather than closing it for half the year. But I suppose we’ll find out!

Potential business that means an immediate loss is still going to be avoided when legal.

I can see insurers competing by allowing customers to change companies at will - as long as they already have coverage. Waivers on open enrollment could be as they are now - new children, spouse etc. can sign up immediately - initial enrollment and changes once enrolled are more restrictive.

From the insurer point of view, allowing unrestricted signups of uninsured customers (after they get sick) would be ‘bad business’ and I think they will avoid that if/when they can.

The IRS is collecting this penalty, and I would think that if you were a persistent offender, there would be jail time involved, no? People have gone to jail for not paying income taxes. I would not be surprised if some Tea Party Activist types tried to get thrown in jail as a form of civil disobedience.

I’m not sure about your reading of this provision. Are you saying that you think insurers will be able to implement different enrollment periods, and different waits between enrollment periods, for different types of customer? I.e. if you have a pre-existing condition, you have to wait longer to be enrolled? Because that would fly in the face of the regulations that are intended to prevent discrimination based on pre-existing conditions. My guess is that enrollment periods will basically be universal, and insurers won’t be able to practice under-the-radar discrimination by varying the delays between enrollment periods. And if that’s the case, then it won’t be true that the “potential business means a loss”, because a lot of the customers they’d be missing out on won’t be loss-makers. If insurers would be allowed to vary their enrollment periods for different customers then I’d be worried about that.

No. There’s no criminal penalties and no debt collection for the fines, even if you flatly refuse to pay them. You cannot go to jail for not paying them. In fact, as far as I can tell there isn’t much enforcement of the fines at all, which is a potential problem in itself.

From the second hand information I heard, the IRS can withhold any tax refunds until penalties are paid.
Is it true 16,000 new IRS agents are going to be hired, and if so why if the are not going to enforce the penalty ?