Thursday, September 20, 2012

Fwd: qotd: Six million will face penalties under the Affordable Care Act

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-------- Original Message --------
Subject: qotd: Six million will face penalties under the Affordable
Care Act
Date: Thu, 20 Sep 2012 10:53:27 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

Congressional Budget Office
September 19, 2012
Payments of Penalties for Being Uninsured Under the Affordable Care Act

Beginning in 2014, the Affordable Care Act (comprising Public Law
111-148 and the health care provisions of P.L. 111-152) requires most
legal residents of the United States to either obtain health insurance
or pay a penalty tax. That penalty will be the greater of: a flat dollar
amount per person that rises to $695 in 2016 and is indexed by inflation
thereafter (the penalty for children will be half that amount and an
overall cap will apply to family payments); or a percentage of the
household's income that rises to 2.5 percent for 2016 and subsequent
years (also subject to a cap).

The Congressional Budget Office (CBO) and the staff of the Joint
Committee on Taxation (JCT) have estimated that about 30 million
nonelderly residents will be uninsured in 2016, but the majority of them
will not be subject to the penalty tax. Unauthorized immigrants, for
example, who are prohibited from receiving almost all Medicaid benefits
and all subsidies through the insurance exchanges, are exempted from the
mandate to obtain health insurance. Others will be subject to the
mandate but exempted from the penalty tax—for example, because they will
have income low enough that they are not required to file an income tax
return, because they are members of Indian tribes, or because the
premium they would have to pay would exceed a specified share of their
income (initially 8 percent in 2014 and indexed over time). CBO and JCT
estimate that between 18 million and 19 million uninsured people in 2016
will qualify for one or more of those exemptions. Of the remaining 11
million to 12 million uninsured people, some individuals will be granted
exemptions from the penalty because of hardship, and others will be
exempted from the requirement on the basis of their religious beliefs.

After accounting for those who will not be subject to the penalty tax,
CBO and JCT now estimate that about 6 million people will pay a penalty
because they are uninsured in 2016 (a figure that includes uninsured
dependents who have the penalty paid on their behalf) and that total
collections will be about $7 billion in 2016 and average about $8
billion per year over the 2017–2022 period. Those estimates differ from
projections that CBO and JCT made in April 2010: About two million more
uninsured people are now projected to pay the penalty each year, and
collections are now expected to be about $3 billion more per year.

Most of the increase—about 85 percent—in the number of people who are
expected to pay the penalty tax stems from changes in CBO and JCT's
baseline projections since April 2010, including the effects of
legislation enacted since that time, changes in the economic outlook
(primarily a higher unemployment rate and lower wages and salaries), and
other technical updates. A small share—about 15 percent—of the increase
in the number of uninsured people expected to pay the penalty results
from the recent Supreme Court decision. As a result of that decision,
CBO and JCT now anticipate that some states will not expand their
Medicaid programs at all or will not expand coverage to the full extent
authorized by the ACA. Such state decisions are projected to increase
the number of uninsured, a small percentage of whom will be subject to
the penalty tax.

Among the uninsured individuals subject to the penalty tax, many are
expected to voluntarily report on their tax returns that they are
uninsured and pay the amount owed. However, other individuals will try
to avoid payments. Therefore, the estimates presented here account for
likely compliance rates, as well as the ability of the Internal Revenue
Service (IRS) to administer and collect the penalty.

CBO and JCT have also updated their estimates of the distribution of
those penalty tax payments by income category. Table 1 (in PDF available
at link) shows how much of those payments are projected to be made by or
on behalf of people who are uninsured in 2016 (which the IRS will
collect in 2017) in each of several income categories, measured as
percentages of the federal poverty level (FPL). In general, households
with lower income will be subject to the flat dollar penalty (with
adjustments to account for the lower penalty for children and an overall
cap on family payments), and households with higher income will owe a
percentage of their income. In 2016, households with income that exceeds
400 percent of the FPL are estimated to constitute about one-third of
people paying penalties and to account for about two-thirds of the
receipts from those penalties.

Comment: When it was decided to use the purchase of private plans as
the model for insuring everyone, it was clear that the law must include
a requirement to purchase plans and that the threat of assessing a
penalty would have to be included to ensure compliance, otherwise
adverse selection would have driven insurance premiums up even higher
than their current intolerable levels. It was also clear that this still
wouldn't ensure universality because of various exceptions and

We now have a reasonably reliable estimate from the Congressional Budget
Office that tells us that 30 million people will remain uninsured and
that 6 million of them will be assessed penalties. That is a terrible
outcome when considering that a single payer system would have covered
everyone automatically, obviating the need for penalties.

Some will note that the penalty is not as onerous as it might have been
since two-thirds of the total amount will be paid by households with
incomes over 400 percent of the federal poverty level. The fact that
more lower income households will be exempt from the penalty is hardly a
reason to celebrate when considering that the price they do pay is
remaining uninsured.

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