Weakened Enforcement of Obamacare’s Individual Mandate. So now what?

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Shortly after taking office, President Trump signed an executive order designed to weaken the Affordable Care Act by directing federal agencies to look for ways to ease the law’s burdens on businesses and individuals.  We now have our first response to that directive.

Earlier this month, the Internal Revenue Service quietly announced it would be weakening its enforcement of the the health care law’s requirement that individuals either acquire health insurance or pay the penalty. This has left a lot of business owners, who are mandated to provide health coverage to their employees, asking just what that means for them.  If the individual mandate is off the table, is Obamacare effectively over?

Background

The individual mandate to purchase health insurance (or pay the penalty) is a cornerstone of Obamacare, as it forces younger, healthier Americans who might otherwise gamble and go without coverage to join the risk pool and help offset insurers’ costs in providing coverage to older, sicker people.

Since the formal launching of Obamacare in 2014, taxpayers have been asked on their 1040 federal tax returns to declare whether or not they or members of their family have qualified health insurance — and provide documentation to prove it. It’s been optional, but even with this voluntary approach, the IRS collected individual mandate payments from 8.1 million tax returns in 2015 for a total of $1.7 billion, according to an analysis of IRS data by Investor’s Business Daily. This year, the IRS had planned for the first time to make it mandatory for taxpayers to check the box or face not having their tax returns processed and their tax returns withheld. In other words, the IRS decided to crack down on the rule breakers.   

The announcement this month confirms that the IRS will officially abandon that tougher approach and will continue to grant taxpayers the discretion of checking the box to indicate whether they have health coverage or have paid the penalty to relieve them of that responsibility.

Impact

So how much difference can one little box make?  Well, for starters, it means that “silent” returns — those that don’t answer the health insurance question — won’t be automatically rejected.  That’s good news for the “rule breakers”, especially those expecting a refund.  

But where does this all leave the employer mandate?  And Obamacare in its entirety?

It’s really too early to say whether this recent change will make any difference to the overall integrity of Obamacare.  I say this because experts have often coined Obamacare a  “three-legged stool” of reform mandates: 1) regulations to guarantee issue with no pre-existing condition exclusions, 2) subsidies to help those buy insurance priced out of reach and 3) a requirement that everyone must buy insurance or pay a tax penalty.  It’s possible, then, that if you pull one leg of the stool (in this case, the individual mandate), the whole thing collapses. It’s also possible that a significant portion of it can walk on two legs.  That’s why I’m reluctant to say the ACA is doomed simply because of this one change.

My best advice for you now is to conduct your health insurance business as usual.  Only Congress can fully dismantle the ACA, and it has yet to present a plan to do that.  However, keep your eyes and ears open. The Trump administration may not be tearing Obamacare down entirely, but it appears determined weaken the law, however subtly, one line at a time.  Change for employers may come sooner than we think.

 

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