IRS to Serve as Health Reform Enforcer, but Lacks Authority to Enforce

The health care reform bill to be signed Tuesday by President Obama would give the IRS a new mandate to enforce some of measures key provisions — but apparently not the means to do so.

Under the Senate bill approved Sunday by the House, the Internal Revenue Service would be called on to ensure Americans are obtaining health care insurance and businesses are offering it, or else they could face fines. Many would receive subsidies to help pay for insurance.

The emphasis is on incentives for healthy people to buy insurance, thereby spreading the risk of older, less healthy people over a broader pool of customers. For those earning between $22,050 and $88,200, there are tax credits for health insurance premiums. In addition, individuals initially face fines of up to $750 for not buying in; businesses would face fines of up to $3,000.

It will cost the IRS $5 billion to $10 billion over 10 years to handle the new workload, according to a March 11 estimate by the Congressional Budget Office. But the Senate bill doesn’t provide any funding for the expansion of the IRS, and it virtually ties the hands of the IRS to collect fees on individuals and businesses who don’t buy health insurance.

“The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty," according to the non-partisan Joint Committee on Taxation. "Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the code and interest does not accrue for failure to pay such assessments in a timely manner."

That means there’s virtually nothing the IRS can do to enforce the fines in the legislation, forcing the tax man to rely on the consciences of taxpayers or to skim off any federal benefits, tax credits or refunds they have coming to them.

"In other words, if you're due a refund or some other federal benefit, and you didn't obtain qualified insurance, your refund or benefit will be tapped for your fee,” said Bill Ahearn, director of policy and communications for the Tax Foundation.

“People who aren't due any refunds or federal benefits will apparently face no collection action, as the IRS's hands will be effectively tied and it will be a truly voluntary tax."

Supporters of the bill, however, believe that while the IRS needs to be able to enforce the fines, it’s unlikely that the agency's inability to do so will give people a reason not to buy into health care.

“Surveys routinely show that people don't pay for health care because they can't afford it,” said Timothy Jost, a professor at Washington & Lee University Law School. “This bill gives them a way they can afford it.”