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

[The_Great_Philosopher]

@1step4word

From the second hand information I heard, the IRS can withhold any tax refunds until penalties are paid.

Maybe. To be honest I haven’t found any thorough reliable information about how the fine is going to be enforced exactly. I do know it cannot be enforced with criminal penalties or liens - i.e. the government cannot repossess property for payment of the fine. But whether the IRS can withhold tax refunds I don’t know.

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 ?

Politifact rated this claim barely true. That figures comes from a GOP committee analysis, which cherry-picked a high figure and ignored some caveats. But it’s true the bill will probably involve at least a few thousand extra IRS agents being hired. They will be involved in assessing whether people fall under the remit of the individual mandate, whether those people have taken out insurance or not, and if they haven’t, in issuing the fines. The question is what steps they can take if people refuse to pay those fines, and I’m not sure what the answer is (although I know it doesn’t involve criminal penalties or liens).

[jasg]

@The_Great_Philosopher

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.

All I am saying is that I expect the Exchanges to function in a manner very similar to existing employer offered plans and Medicare. I am not an insurance expert, but I’d bet that open enrollment periods exist to minimize the number who would signup only after an illness/injury.

I expect that there will be an initial enrollment period in 2013-2014 for anyone who wants to purchase coverage through an Exchange (primarily because they do not have employer coverage). By law, there will be no denials of coverage for any reason.

If you don’t sign up in this initial enrollment period, you wait until the next open enrollment. This is just like things are now at your employer or Medicare.

If you lose your employer coverage, have a child, get married - you can sign up or sign up child/spouse immediately, no waiting for open enrollment.

If open enrollment periods are defined, I expect that they will be the same for all insurers in the exchange - regulated by each state. Most likely, they will mimic existing Medicare periods and process since that will be an easily defended precedent.

[athelas]

From here (emphasis mine):

The real kicker starts in 2014:

Reforming Health Insurance Regulations. Implements strong health insurance reforms that prohibit insurance companies from engaging in discriminatory practices that enable them to refuse to sell or renew policies due to an individual’s health status. Health plans can no longer exclude coverage for treatments based on pre‐existing health conditions. It also limits the ability of insurance companies to charge higher rates due to heath status, gender, or other factors.

Promoting Individual Responsibility. Requires most individuals to obtain acceptable health insurance coverage or pay a penalty of $95 for 2014, $325 for 2015, $695 for 2016 (or, up to 2.5 percent of income in 2016), up to a cap of the national average bronze plan premium.

The problem with the first provision is that it basically ensures that adverse selection will happen on a massive scale. If everyone can buy the same level of insurance, regardless of their health condition, the people who are most likely to buy it are those with preexisting conditions who expect to undergo expensive procedures. As high-cost patients sign on, the insurer must cover these costs by increasing its rates, thus making health insurance a worse and worse deal for relatively low-cost healthy people. As healthy people drop out, premiums must rise further. After several iterations of this, the equilibrium is a series of very expensive insurance pools covering the sickest and most costly-to-treat patients, with everyone else priced out of the market. What this really means is that the winning strategy is not having health insurance while you’re healthy, and then signing up for it when you come down with an expensive ailment – there’s no way the insurance company can turn you down, and they have to foot the bill.

Paul Krugman has argued that if you ban differential pricing based on preexisting conditions, then you must have a mandate to avoid adverse selection. I agree with this argument – you can’t have one without the other – though I disagree on the aims (he wants both; I’d prefer neither). But the second provision – theoretically a mandate – imposes a puny penalty for not having health insurance. The penalty for employers who do not offer insurance are correspondingly puny. There is no way, with adverse selection operating at full blast, that a penalty of this size will induce healthy folks to sign up for expensive insurance policies that they are virtually guaranteed to lose money on.

Of course this turn of events will hardly go unnoticed. As David Henderson imaginatively explains, it is unlikely that people will make the connection between the nice-sounding anti-discrimination provision and skyrocketing insurance premiums. Most likely this will be a target for demagoguery about those Greedy Insurance Companies gouging their customers, and politicians, avoiding blame for their own actions that precipitated these conditions, will turn around and use this populism to push through even more regulation. Plausibly, this second stage of reform will involve raising the penalties for not having government-approved health insurance, or the creation of a public option, which will look much more attractive after the private insurance market has been trashed. In this way, although the recently-passed bill is more modest than House’s initial offering, it leaves a backdoor to a public option.

[The_Great_Philosopher]

@athelas

From here (emphasis mine): Plausibly, this second stage of reform will involve raising the penalties for not having government-approved health insurance, or the creation of a public option, which will look much more attractive after the private insurance market has been trashed. In this way, although the recently-passed bill is more modest than House’s initial offering, it leaves a backdoor to a public option.

A public option is an insurance product that, by definition, can only exist in a functioning private insurance market. Not only would it not be a solution to a private market collapsing because of adverse selection, it wouldn’t even work in that situation. That article made a good argument up until that fairly catastrophic misunderstanding.

[Sam_Stone]

@1step4word

From the second hand information I heard, the IRS can withhold any tax refunds until penalties are paid.

Right. And one of the unintended consequences of this is that people could start filling out the paperwork to reduce their tax withholdings so that they don’t get refunds. And that will result in the government losing part of the revenue they get from interest on income tax withholding, along with losing the revenue from the fines themselves.

It will be interesting to see what happens if it turns out that in five years there are 30 million people with delinquent fines.

[md2000]

I bet sooner or later the “penalty” will be added to withholding taxes for any employee whose employer who does not provide healthcare. Fill out a form to avoid the deduction if you have non-employer coverage. Lying on the form will be an offense. They may not prosecute for the fee, but they will prosecute for lying about your taxes.

So basically you will be probably paying the amount one way or the other, no choice unless your situation is very unusual - self-employed, no tax refunds.