Who Will Pay the Individual Mandate Tax?

May 12, 2014

It is unclear what will happen when uninsured Americans are asked to pay the individual mandate tax, writes James Capretta, senior fellow at the Ethics and Public Policy Center.

When the Supreme Court ruled on the legality of Obamacare's individual mandate in NFIB v. Sebelius, it concluded that Congress -- while it could not mandate the purchase of health insurance -- did have the authority to collect a tax from those who did not purchase it.

But how many Americans will choose the tax option?

  • In many cases, the tax will be much less than the cost of insurance premiums, and Obamacare allows anyone to sign up for coverage during subsequent enrollment periods, with no penalty on their premiums.
  • According to the Congressional Budget Office (CBO), 42 million Americans are likely to be uninsured in 2014.
  • Other CBO analyses have determined that large portions of the uninsured will be exempt from the individual mandate tax. Undocumented immigrants and very low-income households are not subject to the tax. According to the CBO, those categories comprise two-thirds of the uninsured. Other exemptions also apply, leading the CBO to determine that, in 2016, 20 percent of the uninsured will be subject to the Obamacare tax.
  • Extrapolating from the CBO's 2016 estimates, 8.4 million Americans could be subject to the mandate tax in the 2014 enrollment year. Capretta notes that the actual figure could be even higher, up to 12 million people.

Opposition to the tax is likely to grow in the coming months, Capretta says. The Department of Health and Human Services has already provided the public with a list of acceptable excuses for failing to purchase insurance (and, therefore, not having to pay the tax), including a death in the family or "another hardship in obtaining health insurance."

Source: James C. Capretta, "How Many People Will Pay the Individual Mandate Tax for 2014?" Economics 21, May 7, 2014. 

 

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