House Bill Protects Members of 17 Failed Obamacare CO-OPs from Uninsured Penalty

By Barbara Hollingsworth | October 7, 2016 | 4:57pm EDT
President Obama signs the Affordable Care Act in the East Room of the White House on March 23, 2010. (AP photo)


( – The House of Representatives has passed a bill to protect more than 800,000 former members of 17 failed Obamacare CO-OPs from having to pay a penalty for being uninsured when they file their 2016 tax returns.

The CO-OP Consumer Protection Act (H.R.954), which passed last week on a 258-165 vote, would “amend the Internal Revenue Code of 1986 to exempt from the individual mandate certain individuals who had coverage under a terminated qualified health plan funded by the Consumer Operated and Oriented Plan (CO-OP) program.”

Some of the failed non-profit CO-OPs - which American Action Forum president Douglas Holtz-Eakin called “the first version of the public option” - initially exceeded enrollment projections because they offered health insurance plans at a lower cost than private insurers.

However, for the same reason they also attracted a higher proportion of high-risk enrollees. Because they were not allowed to base premiums on members' health status, they were eventually unable to keep up with the escalating costs of providing coverage despite large government subsidies.

“Now, 17 of the original 23 CO-OPs, which received more than $1.7 billion, have closed or are in the process of closing, with the remaining six also struggling to remain solvent,” said Rep. Adrian Smith (R-NE), the bill’s sponsor.

“This is a simple bill rooted in fairness,” Smith told fellow House members. “It is absurd for the government to penalize consumers who tried to comply with the law but could not do so due to the law’s own failures.”

Republican Majority Leader Kevin McCarthy (R-CA) also spoke on the House floor in favor of the bill.

“Obamacare is collapsing all around us. Insurers are backing out, people can’t afford the premiums, and even heavily subsidized CO-OPs are crashing,” he said, pointing out that many Americans were “left in the lurch” when their CO-OP failed.

“So these people are left without insurance through no fault of their own – insurance they were forced to buy – and what is the response? What does Obamacare say? Tax them. Tax them for not having insurance,” McCarthy pointed out.

“Now, I don’t know about you, Mr. Speaker, but isn’t that a little crazy?” McCarthy asked. “How can you punish people for not having insurance when the CO-OP they bought their insurance from goes under? It’s bad enough people are left without insurance because of the failures of Obamacare, but why should we have the IRS punish them on top of that?”

House Budget Committee Chairman Tom Price (R-GA), an orthopedic surgeon, also blasted the administration for trying to impose a tax penalty on people who lost their insurance coverage when their CO-OP failed.

“The same law that encouraged people to sign up for these doomed CO-OPs – and did nothing while they imploded – is now penalizing folks who lost their coverage. This is ridiculous, and the American people should not have to put up with it,” Price said.

Republican House leaders also voiced their objections to a “reported outreach” by the Centers for Medicare and Medicaid Services (CMS) to other uninsured taxpayers who opted to pay a fee instead of buying health insurance under Obamacare’s individual mandate.

“In order to facilitate this reported outreach, access to confidential [tax] return information is needed, which raises legal and privacy concerns,” McCarthy (R-CA), Majority Whip Steve Scalise (R-LA), and Ways and Means Chairman Kevin Brady (R-TX ) said in a September 21 letter to Internal Revenue Service (IRS) Commissioner John Koskinen.

“It also demonstrates the extent to which the Administration is willing to use the power of the IRS to insert itself into the lives of individuals who have made a legal and personal choice not to purchase a health plan,” the letter stated.

“We strongly object to any action by the Administration to improperly use sensitive taxpayer information to identify and harass individuals who have rejected the Patient Protection and Affordable Care Act (ACA) by choosing to pay a tax rather than be forced into a health care plan they don’t need and don’t want,” the lawmakers said.

Under the ACA's individual mandate, all Americans (with some exemptions) must have “minimum essential coverage” or be subject to an “annual fee for not having insurance”.

The fee for being uninsured this year, which increases annually to keep pace with inflation, is $695 per adult and $347.50 per child up to $2,085 for a family of four, or 2.5 percent of their annual household income above their tax filing threshold, payable when they file their 2016 tax returns.

The IRS reported that 8.1 million Americans opted not to purchase minimum essential coverage and paid an average of $210 in additional taxes on their returns in 2014, the first year the Obamacare penalty went into effect. According to the IRS, the tax agency collected $1.7 billion in penalties - which it calls “individually shared responsibility payments” - for that year.

Koskinen told Congress that in 2015, “approximately 7.5 million taxpayers reported a total of $1.5 billion in individually shared responsibility payments.”

In a December analysis of the individual mandate penalty, the Kaiser Family Foundation found that millions of Americans “would pay less” if they decided not to purchase the “least expensive insurance” and opted to pay the penalty instead.  

“Out of almost 11 million uninsured people who are eligible to enroll in marketplace coverage, either with or without financial assistance, 7.1 million would pay less for any penalty than they would to buy the least expensive insurance available to them,” the report noted, adding that “emphasizing the mandate to obtain coverage presents challenges for ACA advocates since it is the most unpopular part of the law.”

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