Individual mandate could lead to penalty on 6 million Americans, says CBO

Friday, September 21, 2012

A change in projections made in April 2010 by the Congressional Budget Office (CBO), along with the Joint Committee on Taxation (JCT), means that it looks like two million more people than originally estimated will be subject to the Patient Protection and Affordable Care Act’s (ACA’s) penalty in 2016. The CBO released new figures recently, and it’s hard to say if this is bad news for the Obama Administration or not.
On the one hand, the CBO reports that the penalty is likely to hit almost six (5.9) million legal American residents. On the other hand, the tax won’t rise to that level until 2016, and it is now expected to bring in almost seven (6.9) billion dollars in revenue for that year, three billion more than originally anticipated.

The penalty will rise to $695 per person in 2016, and will be indexed for inflation thereafter. The CBO report took into account the fact that the penalty is half that amount for children. Wealthier households will owe a penalty based on a percentage (2.5% in 2016) of their income.

The CBO and JCT explain that the reason for the change in estimated numbers is due primarily to a higher than expected unemployment rate and lower than expected wages. They are also attributing the difference to legislation enacted subsequent to the passage of the ACA.

States’ lack of Medicaid expansion could impact penalty revenue. Also, the CBO attributes approximately 15% of the increase to the Supreme Court’s decision to give states the option to refuse to expand their Medicaid eligibility programs without losing all of their Medicaid funding. The number of uninsured is expected to be substantially higher in states that decline Medicaid expansion, and some of those uninsured, says the CBO, will be subject to the penalty tax.

The federal poverty level (FPL) is projected to be $12,000 for a single person in 2016, and $24,600 for a family of four. The CBO advises that approximately 1/3 of people paying the penalty will live in households with income in excess of four times the federal poverty level (FPL) and will provide for around 2/3 of the funds received.

For a comprehensive analysis of the ACA, along with additional information on health reform and other developments in employee benefits, just click here.