NCPA - National Center for Policy Analysis

Taxing the Uninsured: The Latest Estimates

July 31, 2012

On June 28, 2012, the U.S. Supreme Court upheld the Patient Protection and Affordable Care Act as a legitimate exercise of Congress' power to tax. The tax it imposes, however, is complicated. Effective January 1, 2014, most Americans without health insurance will be required to make a payment to the U.S. government, says William McBride, an economist at the Tax Foundation.

Once fully in effect, the tax is the greater of:

  • A flat amount of $695 per adult taxpayer plus $347.50 per dependent under 18.
  • Two-and-a-half percent of income over the filing threshold for federal income taxes ($9,500 for most single filers and $19,000 for most married filers in 2011).

The total tax cannot exceed the national average premium for "bronze level" qualified health plans offered through exchanges, where bronze plans are those that cover 60 percent of expenses for a standard population. The Congressional Budget Office (CBO) estimates that in 2016 this average premium would be about $4,750 for single policies and $12,250 for family policies.

In assessing the impacts of this tax penalty on various types of filers, the Tax Foundation discovered that it has a number of unanticipated consequences.

  • Poorer families, regardless of composition, must pay a substantial portion of their income toward the tax.
  • Higher income families generally pay a higher amount, but actually a smaller percent of their income, making this a regressive tax.
  • In 2010, the CBO estimated that 3.9 million people would pay the tax in 2016, and the vast majority would be low- and middle-income households (76 percent would earn less than 500 percent of the federal poverty level, or about $120,000 for a family of four)
  • Further, due to the Supreme Court's ruling that the Medicaid expansion was truly optional for states, another 3 million could potentially face the tax burden (though the CBO points out that many will be excluded due to low incomes.)

In addition to this enormous tax burden, it is almost certain that consumption of health care services will increase as a result of the implementation of the law. The Centers for Medicare and Medicaid Services predict that health care expenditures as a share of gross domestic product will climb from 17.8 percent in 2013 to 19.6 percent in 2021.

Source: William McBride, "Taxing the Uninsured: The Latest Estimates," Tax Foundation, July 24, 2012.

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