IRS to enforce lack-of-healthcare penalties - and it could run to several thousand dollars

by: Clyde Middleton   posted: 2009-08-10 18:55:00
Viewed 1034 times. 1 Comments.

Here it is in a nutshell: We are required - every one of us - to report our health-insurance status each tax filing for the preceding year - I'll make this single caveat: It reads where it may be insurance companies are required to give us something like a W-2 for insurance coverage (the only date mentioned is January 31). And since it all leads to paying taxes, we'll be reporting it with our 1040s. Failure to provide insurance for ourselves and every dependent will result in a tax equal to 2.5% of our AGI (adjusted by a de minimus amount) to a maximum of the national average insurance premium for the periods of time for which no insurance was in place. It is not a "fine" or a "penalty," but a tax that falls under the IRS to collect and enforce non-payment. What is the average premium? Not a single number has been floated. So, $500 a month? Medicare Part B alone runs as high as $300. $500 is cheap - let's use it - that's an additional tax of 2.5% of AGI to a maximum of $6,000 for failure to sign up for Obamacare. Further, we don't get insurance for that tax, so functionally it is a fine except the full weight of the Internal Revenue Service will be involved.

Now, let me back up everything I just wrote. First, here's the full text of the present health-care bill.

We are required - every one of us - to report our health-insurance status each tax filing for the preceding year - I'll make this single caveat: It reads where it may be insurance companies are required to give us something like a W-2 for insurance coverage (the only date mentioned is January 31). And since it all leads to paying taxes, we'll be reporting it with our 1040s.

Go to page 175, beginning at Line 11 of the bill:

(a) REQUIREMENT OF REPORTING.—Every person who provides acceptable coverage (as defined in section 59B(d)) to any individual during any calendar year shall, at such time as the Secretary may prescribe, make the return described in subsection (b) with respect to such individual.

What does the reporting include? Page 176, Line 1:

(A) the name, address, and TIN of the primary insured and the name of each other individual obtaining coverage under the policy, (B) the period for which each such individual was provided with the coverage referred to in subsection (a), and (C) such other information as the Secretary may require.

When is the reporting required? Page 176, Line 20 - but note that this seems to be reporting to us from our insurance companies - similar to receiving W2s:

The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

What is "acceptable coverage"? Go to page 171 beginning at Line 12 to see the definition of "acceptable coverage." It doesn't define it, but instead refers to Section 100(c), which, again, provides no definition but refers to Section 202(d)(2) (page 76, Line 6): A qualified health plan, a grandfathered plan, Medicare Part A, Medicare, coverage through the military, and whatever else they deem OK.

What is a "qualified health benefits plan"? Go to page page 25, beginning at line 15:

SEC. 121. COVERAGE OF ESSENTIAL BENEFITS PACKAGE. (a) IN GENERAL.—A qualified health benefits plan shall provide coverage that at least meets the benefit standards adopted under section 124 for the essential benefits package described in section 122 for the plan year involved.

Section 124 discusses the procedure to establish standards. Section 122 gives some specificity. The items that caught my attention - and remember, in context, every insurance policy in the nation will need to meet these requirements:

Page 27, Line 10: (3) does not impose any annual or lifetime limit on the coverage of covered health care items and services;

Line 15: (5) is equivalent, as certified by Office of the Actuary of the Centers for Medicare & Medicaid Services, to the average prevailing employer-sponsored coverage. (NOTE - how is every policy equal to the average? Doesn't that mean that every policy is the same?)

Page 28, Line 8: (5) Prescription drugs (NOTE - every policy must, therefore, provide Rx coverage.)

Page 28, Line 23: (1) NO COST-SHARING FOR PREVENTIVE SERVICES.—There shall be no cost-sharing under the essential benefits package for preventive items and services (as specified under the benefit standards), including well baby and well child care.

Failure to provide insurance for ourselves and every dependent will result in a tax equal to 2.5% of our AGI (adjusted by a de minimus amount) to a maximum of the national average insurance premium for the periods of time for which no insurance was in place.

Go to page 167, Line 18:

(a) TAX IMPOSED.—In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent of the excess of— (1) the taxpayer’s modified adjusted gross income for the taxable year, over (2) the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer.

Section 6012(a)(1) is merely the minimum thresholds for a taxpayer to have to file an income-tax return at all - so it's de minimum (here's the link if you want to read further). If you continue down that page, you will read that the tax is limited only by the amount of premium you would have had to pay the government if you bought their insurance.

It is not a "fine" or a "penalty," but a tax that falls under the IRS to collect and enforce non-payment.

You see that quote above? "TAX IMPOSED." Recall that insurance companies will give us some W-2-like form. This is after the fact - reporting for last year. We don't get the insurance, we just get fined for not having it - and the IRS cracks the whip for collection.

What is the average premium? Not a single number has been floated. So, $500 a month? Medicare Part B alone runs as high as $300. $500 is cheap - let's use it - that's an additional tax of 2.5% of AGI to a maximum of $6,000 for failure to sign up for Obamacare.

The premium for Medicare Part B changes by income, with the highest amount being $308.30 a month.

Medicare Part B is partial coverage. Here's the quick overview of Medicare:

There are four parts to Medicare: Medicare Part A, Hospital Insurance; Medicare Part B, Medical Insurance; Medicare Part C (Medicare Advantage), which was formerly known as "Medicare + Choice" and the new Medicare Part D, prescription drug coverage. Generally, people who are over age 65 and getting Social Security automatically qualify for Medicare Parts A and B. So do people who have been getting disability benefits for two years, people who have amyotrophic lateral sclerosis (Lou Gehrig's disease) and receive disability benefits, and people who have permanent kidney failure and receive maintenance dialysis or a kidney transplant.

Part A is paid for by a portion of Social Security tax. It helps pay for inpatient hospital care, skilled nursing care, hospice care and other services.

Part B is paid for by the monthly premiums of people enrolled and by general funds from the U.S. Treasury. It helps pay for doctors' fees, outpatient hospital visits, and other medical services and supplies that are not covered by Part A.

Part C (Medicare Advantage) plans allow you to choose to receive all of your health care services through a provider organization. These plans may help lower your costs of receiving medical services, or you may get extra benefits for an additional monthly fee. You must have both Parts A and B to enroll in Part C.

Part D (prescription drug coverage) is voluntary and the costs are paid for by the monthly premiums of enrollees and Medicare. Unlike Part B in which you are automatically enrolled and must opt out if you do not want it, with Part D you have to opt in by filling out a form and enrolling in an approved plan.

Part B is not, therefore, the complete coverage offered. So using a number for the annual average national premium that exceeds $300 a month seems appropriate.

So what number to use? This article is somewhat on point and uses an example of $9,000 a year - or $750 a month.

Another example. This survey claims a national average of $5,799 annually a couple of years ago (see page 7). Seems low - that's just $483 a month. That certainly is not the type of policy coverage Obama is requiring.

Here's some more information:

The federal government tracks average spending on health insurance for people with job-based coverage. The most recent figures are from 2005, and indicate that the average individual's job-based premiums were $3,991 that year, while families spent an average of $10,728.

Of course, I am mixing and matching individual and family coverages, but I am leading to one place: $500 a month for family coverage is not outrageous, and most likely is low - quite low. Therefore, suggesting an additional potential tax of $6,000 for failure to provide insurance for the family for the entire year is likewise - at best - a low number. It is capped only by 2.5% of your AGI.

Your AGI $50,000 - tax owed is $1,250

Your AGI $75,000 - tax owed is $1,875

Your AGI $100,000 - tax owed is $2,500

Your AGI $150,000 - tax owed is $3,750

Your money - and you get nothing for it.

Further, we don't get insurance for that tax, so functionally it is a fine except the full weight of the Internal Revenue Service will be involved.

Read it all above. Can't prove a negative. This is a tax penalty.

Happy daze.

Tags: Obama, 

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