Obamacare's Unenforceable Linchpin

The mandate to buy health insurance becomes an easily avoided tax.

Last week the Republican-controlled House of Representatives voted to repeal the Patient Protection and Affordable Care Act, a.k.a. Obamacare. It was the 33rd such vote taken by the House and, since Democrats control the Senate, no more likely to be successful than the first 32.

The day before the vote, however, the House Ways and Means Committee heard testimony that highlighted another, more promising way to override the health care law: Americans can refuse to comply with its command that they obtain government-approved medical coverage, which the Supreme Court has deemed a mere suggestion even though it is essential to the legislation's goals. Furthermore, if Obamacare objectors take a simple precaution, they can opt out without paying the prescribed penalty.

Obamacare requires insurers to take all comers and charge them the same rates, regardless of health. Those rules create two problems that reinforce each other: They raise premiums, and they encourage people to delay buying medical coverage until they're sick.

As more healthy people go without insurance, rates rise further to make up the difference, which encourages more people to go without insurance, which increases rates further still. To avoid such a "death spiral," Obamacare commanded young, healthy people to "maintain minimum essential coverage" as defined by the government, thereby subsidizing the medical expenses of older, sicker people. 

But in upholding this mandate last month, the Supreme Court said it could not be justified under the Commerce Clause, instead redefining it as an exercise of the tax power. It is perfectly legal to go without the health insurance that Congress thinks you should have, the Court said, as long as you pay the "tax" imposed on people who reject the government's recommendation. That interpretation creates new challenges for Obamacare.

"For most Americans," the Court observed, "the amount due will be far less than the price of insurance." Someone earning $50,000 a year, for instance, would be subject to a penalty of about $1,000 in 2016, when the tax takes full effect. A 2011 eHealth study found the average price for an individual policy was $2,200, a number that's apt to rise under Obamacare's minimum coverage requirements, which ban no-frills, high-deductible health plans. As the Court noted, "It may often be a reasonable financial decision to make the payment rather than purchase insurance."

Even paying the penalty is effectively optional, because Congress, for political reasons, barred the Internal Revenue Service from using its most effective tools—liens, forfeiture, and prosecution—to collect it. As the Associated Press recently explained, the IRS, confronted by uninsured taxpayers who refuse to pay the penalty, must instead resort to "scary letters and threats to withhold tax refunds."

How effective will those letters be once taxpayers realize the threats are empty? They can even avoid having the money taken out of their refunds by adjusting their withholding or estimated tax payments so that they come out even (or owe a little) at the end of the year. In practice, no refund means no penalty.

After Obamacare was enacted in 2010, the Congressional Budget Office projected that some 4 million Americans would choose to pay a penalty in 2016 rather than comply with the health insurance mandate. Testifying before the House Ways and Means Committee last week, Steven G. Bradbury, who headed the White House Office of Legal Counsel under George W. Bush, argued that number "will be considerably greater" once people understand they have no legal obligation to buy coverage. In fact, since the penalty is essentially unenforceable, it is possible that it won't produce any revenue to speak of, which would make it an odd tax indeed.

Bradbury suggested that Congress might react to such widespread disobedience, which could make Obamacare financially unsustainable, by increasing the penalty and authorizing the IRS to use more-intimidating tools. But that would reveal the coercive nature of the "minimum essential coverage" provision and the implausibility of viewing it as anything other than an unconstitutional order. 

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist. Follow him on Twitter.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Whiterun Guard||

    You know who else reacted to widespread disobedience by increasing penalties and authorizing the use of more-intimidating tools...

  • some guy||

    Roosevelt?

  • Pound. Head. On. Desk.||

    Wilson?

  • ||

    Judge Judy?

  • $park¥||

    King George III?

  • SIV||

    D'oh! I was thinking of the Raj.

  • SIV||

    The British Empire?

  • BakedPenguin||

    The dentist in Marathon Man?

  • Almanian's Evil Twin||

    The Ohio National Guard at Kent State?

  • Bardas Phocas||

    Nurse Ratched?

  • ||

    The Catholic Church?

  • R C Dean||

    My grade school principal?

  • Cavpitalist||

    Bang Bus?

  • Palin's Buttplug||

    I doubt Obama cares if the tax/penalty is enforceable. The purpose of the ACA was to break into the health insurance cartel.

  • Whiterun Guard||

    If by 'break into the health insurance cartel' you mean buy the votes of the ignorant and lazy, then you might have a point.

  • some guy||

    How does giving insurance companies millions of new customers translate into "breaking into the health insurance cartel"?

    Also, the "health insurance cartel" exists solely because the companies are so restrained in their activities by government regulation that they are essentially clones of one another. How can you innovate when you have someone telling you what coverage you must provide, who you must serve and at what price?

  • Palin's Buttplug||

    Health insures operate a unified procedure database that contains every US resident in it. They do this with antitrust immunity. This is a classic cartel.

    A cartel is a formal agreement among competing firms. It is a formal organization where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.

    (Wiki)

  • sarcasmic||

    Exactly how do these firms prevent new competitors from entering the market without barriers created by government?

  • ||

    The turd polisher is still furiously polishing turds.

    Much like T o n y, it makes arguments and completely ignores any arguments we make, such as the very obvious point made by some guy. Lakoff much?

  • sarcasmic||

    It feels that ignoring equals winning.

  • ||

    some guy - Insurance companies are what they are because of govt over-regulation.

    turd polisher - Insurance companies are bad and must be punished. * smug look on face*

    *Everyone else does a headsmack*

    I keep imagining that these fucking idiot trolls we have here are some kind of obamabot operatives. I mean , really, who has the time or interest to troll this site day in and day out and never make any headway or convince anyone of their bullshit. The only other explanation that makes sense is that they are mentally ill and obsessed with us. Dont we feel special? .....ugh.

  • purple_persuader||

    "The only other explanation that makes sense is that they are mentally ill and obsessed with us."

    Why can't both apply? Frankly I think any Obama operative must be mentally ill and obsessed with the "other", whether that other is libertarians or conservatives.

    But..if you're going to force a choice between the two, I'll go with mentally ill and obsessed.

  • Almanian's Evil Twin||

    *yaaaaaaaaawn*

    Stupid Shriek is stupid.

    Morning, Shriek!

  • Mr. FIFY||

    The sun came up, and shrike is defending Obama. Typical day for "the world's greatest Barry Goldwater fan".

  • Palin's Buttplug||

    How can you innovate when you have someone telling you what coverage you must provide, who you must serve and at what price?

    State insurance commissioners do this now. We're back to a 200 year old argument on federalism.

  • sarcasmic||

    Goalposts say "ZOOM!"

  • Night Elf Mohawk||

    So if there's a problem at the state level -- which no one denies is a possibility in any area of law -- the answer is to extend the problem to the federal government? Good call.

  • DarrenM||

    State insurance commissioners do this now.

    Somehow I doubt state insurance commissioners have that much incentive to be innovative.

  • ||

    You mean like how they "broke into" the restaurant business in Goodfellas?

  • $park¥||

    that would reveal the coercive nature of the "minimum essential coverage" provision and the implausibility of viewing it as anything other than an unconstitutional order

    Because people who can't understand that now will somehow magically see it in the future? Keep dreaming.

  • Cdr Lytton||

    Anything to stop the IRS from increasing the withholding tables or otherwise require increased income tax payments which just happen to be around the amount of the penalty?

    Only a matter of time until there's an Obamacare section in their Frivolous Tax Arguements document:

    http://www.irs.gov/taxpros/art.....32,00.html

  • R C Dean||

    Lytton, you have hit the nail on the head.

    The IRS has an infinity of tools for extracting this money from you. And that's without Congress giving them any help.

    First, of course, the Congressional Research Service confirms that "Nothing in PPACA limits the IRS’s authority or means for assessing the penalty."

    If unpaid, the IRS can put a lien on your property, including your bank account, although they are (currently) prohibited from levying on your property (that is, just taking it). They still have the lien, though, so they are first in line for property that is sold. Not sure how this would work on a bank account, but I have faith that the IRS will find a way to get your money out of your account without your permission.

    The interesting potential maneuver for the IRS is that they simply deem any payments (withholding, whatever) to go to the assessed health care tax first, creating a shortfall in your payment of other taxes that they can use the full IRS Mailed Fist to collect.

  • I love me some liberty||

    Reason should do a poll. Which gov't entity is most feared (in no particular order):

    ~Local Police
    ~FBI
    ~ATF
    ~TSA
    ~IRS
    ~NSA
    ~CIA
    ~ICE

    I have a feeling out of that list of villainy there are many that fear the IRS most. Well, at least the half of us earning money above the table anyway...

  • dinkster||

    Well, the local police are the ones most likely to kill you.

  • sarcasmic||

    Even paying the penalty is effectively optional, because Congress, for political reasons, barred the Internal Revenue Service from using its most effective tools—liens, forfeiture, and prosecution—to collect it.

    For now.

  • Rich||

    the IRS, confronted by uninsured taxpayers who refuse to pay the penalty, must instead resort to "scary letters"

    D-R-O-N-E-S.

  • Night Elf Mohawk||

    Even paying the penalty is effectively optional, because Congress, for political reasons, barred the Internal Revenue Service from using its most effective tools—liens, forfeiture, and prosecution—to collect it.

    Executive order, imo.

    Congress, for political reasons, didn't call it a tax but another branch said it was a tax. What Congress says seems pretty irrelevant when the judicial or executive branch wants something.

  • Longtorso||

    Numbers made up for illustration:

    You owe a $50 ObamaCare penalty
    You owe $100 in taxes. You give the IRS $100.

    The IRS takes the first $50 for ObamaCare. You now owe $50 in taxes.

    The IRS has all its powers at its disposal to collect the $50 owed in 'taxes'. You are not engaging in civil disobedience by not paying the ObamaCare penaltax, you are a grimy tax evader.

    How many people are the IRS going after for ObamaCare penalties? We'll never know, and nobody will ever be accountable for it, because they've been relabeled tax evaders.

  • Longtorso||

    And getting away w/ this little scam is just further proof that 'progressives' are our intellectual superiors. Pulling off something this dishonest must prove they're smarter than us, right?

  • Rich||

    Yep. And don't forget the penalty for not paying the ObamaCare penalty. Writing those scary letters costs the IRS money, you know.

  • R C Dean||

    Beat me to it, Long. Great minds and all that.

  • dinkster||

    Your work deductions have to be optimized so every year, you get back a 50 dollar refund, that the IRS confiscates. Even if you end up only owing 1 dollar, you will pay 1001 dollars.

  • Lemmiwinks||

    I dont get the logic that letting the govt keep money they owe me somehow doesnt cast me anything and is different from paying the fine. In the end the govt has money from me for the purpose they wanted.

  • Almanian's Evil Twin||

    So I'm watching the Science Channel, and they're talking about how the Earth's magetic field is reversing. Last time it did this was evidently ~700,000 years ago. May happen in the next 1500 years or so, based on the evidence to date.

    During the actual change in polarity, there will be a period of about 6-7 months when we're not protected by the magnetic shield. Therefore, we'd anticipate great increases in such ailments as cancers due to the lack of protection from the sun's rays, "space wind", etc.

    Based on this, what are Congrefs' plans to handle the [almost-certain] resultant adverse impact to healthcare costs?

    I'll give you a minute...

  • Rich||

    Increase the required healthcare premiums/penalties?

  • sarcasmic||

    Pass legislation requiring the magnetic field to stay put?

  • ||

    ^This^ There's already a precedent for it. You recall when the GA legislature declared pi to be 3.00 (because the bible said so)?

    All the wheels in GA dutifully changed to hexagons. Causing massive shock absorber failure. It's how Midas got richer than...well, Midas.

  • SugarFree||

    Look, all I know is that the reversal is somehow going to be blamed on personal vehicles, detached housing, and the Koch brothers.

  • NihilistZerO||

    Gave me a nice Chuckle. Good one Sugar...

  • Rich||

  • ||

    May happen in the next 1500 years or so, based on the evidence to date.

    Unless there are some HUGE increases in longevity caused by medical breakthroughs, I'm not gonna worry about stuff that may or may not happen on that timeframe.

  • Emmerson Biggins||

    So my tinfoil hat will be doing double duty?

  • ||

    we'd anticipate great increases in such ailments as..."space wind", etc.

    I had that once.

  • Brian from Texas||

    Good luck enforcing Obamacare here in Texas. The IRS touches one our citizens on this issue and we'll take Texas out of the Union so fast it'll make Washington's head spin.

  • Cavpitalist||

    That's all it took to get rid of texass?

  • DJK||

    I'm gonna go out on a limb here and guess that Texas won't establish a Medicaid exchange. Based on what I've read, only states that set up Medicaid exchanges can have the penalty applied to their citizens. So it would seem that you won't have to give the IRS a dime. Granted, I haven't actually read the monstrosity - this is just my understanding from places like Volokh, etc.

  • Major Pain||

    we'll take Texas out of the Union so fast it'll make Washington's head spin.

    Oh please, don't tease so. The idea of you and your no-sex-toy laws, your substandard educational policies, and your enormous load of superstitious citizens leaving the union fills this person with hope and joy, yet we know, like most things Texans say, it's just more bullshit. You won't leave -- no matter what. I *dare* you to leave. Please leave. :)

  • wideguy||

    Education more substandard than say, Detroit?
    Couldn't be.

  • Mr. FIFY||

    Hate to point out "uneforcable", Jacob, but that typo does kinda stick out.

    Otherwise, good column.

  • Apocalyptic_Tourist||

    and here I was ready to go to prison, then organize prisoners at all institutions for one massive insurrection, overwhelming authorities. oh well, best laid plans..... I guess now it's only a matter of adjusting my withholding. Back to being a tool. :(

  • T. Durden||

    So does this mean all the rhetoric about this being fascism and tyranny were BS?

  • wideguy||

    I'm going to refuse the coverage, pay the "tax", then sue in district Court for a return of the "tax", on the grounds that it's a Constitutionally Direct tax that is not apportioned, as all Direct taxes must be.

  • ole||

    This topic raises three questions that I have not found the answer to:

    1 - If the tax is paid where does that money go? In principal it should go to the insurance companies because they ideally need 100% participation to provide the required policies to everybody. If some do not participate then the premium income that they need to cover claims for the insured will be inadequate. In that case insurance companies will probably get out of the business leaving the door open for a single payer plan which might be the "ultimate" plan. However, if the tax monies do not go to the insurance companies will they go back into the general fund for Congress to play with which is arguably problematic?

    2 - What happens if a business does not want to cover its employees? There is a tax associated with that decision. In this case, are the rules defining allowed IRS actions the same as for individuals or are they different? If they are the same I suspect that the number of employers who drop insurance coverage would be considerably greater than currently projected.

    3 - Was this "loophole" a screw up due to nobody having the time or patience to read the bill or was it purposely incorporated into the bill?

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement