CBO Says Govt to Collect $69 Billion in Tax Penalties From Health Care Law’s Insurance Mandate in First 10 Years
March 23, 2010 - 9:09 PMThe Congressional Budget Office's (CBO) preliminary estimate of the health reform bill shows that the government stands to reap $69 billion in tax penalties as a result of a mandate in the law that requires businesses and individuals to carry health insurance or pay a fine.
That $69 billion figure is a combination of estimated tax penalties generated from both the individual health insurance mandate and the mandate on all but the smallest employers to provide their employee with insurance.
The mandate on individuals would generate $17 billion in penalties during the 2010-2019 time period, while the mandate on employers would generate $52 billion in penalties over that period, according to the CBO.
However, neither of these mandates takes effect in 2010, meaning that while their effects over that 10-year period look relatively small on average -- $1.7 and $5.2 billion per year respectively – they will actually take in much more money per year and as the years progress.
The individual mandate, for example, does not take effect until 2015, when it is expected to earn the government an estimated $2 billion. Then in 2016 the estimate climbs to $3 billion, and then to $4 billion 2017.
According to the CBO, the penalties from the individual mandate will continue to bring in $4 billion a year from 2017 through 2019. Because the CBO does not score the tax penalties past 2019, it is not possible to tell whether the penalties will rise again. However, they are permanent as the law stipulates.
The same is true for the tax penalties collected under the employer mandate. These penalties are estimated to bring in $3 billion in their first year, 2014. The fees then rise to $8 billion in 2015 and to $10 billion in 2016, where they remain until rising again to $11 billion in 2019. As with the individual mandate, the CBO does not score the employer mandate past 2019. It, however, is also permanent.
The individual mandate penalty and the employer mandate penalty would be collected by the Internal Revenue Service (IRS), just like other income taxes. Technically, the penalty is a tax on people who do not have a minimum level of health insurance at any time throughout the year.
According to the new health care law, the individual mandate tax would be the greater of $750 per person or 2 percent of household income.
The maximum penalty per household cannot go above $2,250, nor can it go above the average premium for the bronze-level plans offered under the government insurance exchanges.
These penalties fall under the full jurisdiction of the IRS. This means that anyone who does not pay them is subject to the full range of tax-evasion fines, including the assessment of interest and penalties on individual Americans and businesses that did not buy a level of health insurance the government deemed acceptable.
Both mandates, like all taxes, carry reporting requirements, meaning that both individuals and employers must report to the IRS and satisfy to that agency that they have carried or provided their employees with the government-required level of insurance.
The bill also includes mandates on insurance companies to provide individuals with statements, much like the W-2 form employers provide employees, outlining the level of health coverage and duration of that coverage for each year.
Employers must also report to the government whether they have provided their employees with the approved level of coverage.