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Less Than 3% Seen Paying U.S. Health Law Penalty: BGOV Barometer

Graphic: David Ingold/Bloomberg
Graphic: David Ingold/Bloomberg The BGOV Barometer shows CBO estimates for individual mandate penalties. The estimates show the number of penalty payers and total penalties for every income level.

The U.S. health-care overhaul’s penalty for not carrying health insurance, which the Supreme Court ruled is a tax, will fall on fewer than 3 percent of taxpayers, mostly in middle- and lower-income categories.

The BGOV Barometer shows that about 3.9 million people will pay a penalty in 2016 for not carrying health insurance under the Affordable Care Act’s so-called individual mandate, according to projections by the Congressional Budget Office. The total, equal to about 2.8 percent of the individual income tax returns Americans filed in 2010, includes 3 million families earning less than $120,000 a year.

Most Americans consider the penalty under the individual mandate to be a tax, according to a Quinnipiac University poll published last week. That leaves President Barack Obama, who made passage of the law one of his presidency’s earliest priorities, to defend his promise not to raise taxes on the middle class.

The Supreme Court ruling “changed that calculus 100 percent,” said Doug Holtz-Eakin, who was an adviser to Republican Senator John McCain’s presidential campaign and now runs the American Action Forum, a Washington-based group that opposes the health law. The decision “says it’s a tax, and it’s on those people.”

In practice, the number of people who will have to worry about the penalty is so small that opposition to the mandate is “purely political,” said Linda Blumberg, a researcher at the nonprofit Urban Institute who assisted health reform efforts by President Bill Clinton in the 1990s and in Massachusetts in 2005.

Hardship Exemptions

Illegal immigrants, people who don’t make enough money to file taxes and people for whom insurance would cost more than 8 percent of their income are all exempt from the penalty -- about 87 million people in 2011, Blumberg calculated in a March paper. In addition, the government has broad authority to extend waivers to anyone who suffers an undefined hardship.

Kathleen Sebelius, the secretary of the Department of Health and Human Services, has said she may extend hardship waivers to low-income people in states such as Florida and Texas whose governors refuse to participate in the law’s expansion of Medicaid, the health plan for the poor.

About 26 million people would have found themselves both without insurance and facing the penalty, based on 2011 data, Blumberg calculated.

Of those, 8.1 million would be eligible for Medicaid if all states participate in the expansion. An additional 10.9 million could buy private insurance subsidized by the government.

Choosing Penalty

That leaves 7.3 million people -- 2 percent of the U.S. population -- who will have to choose between paying the penalty or buying unsubsidized insurance, she said.

The court decision may increase the number of people who pay the penalty because it changed the perception of the law, Holtz-Eakin said. Before the ruling, the Congressional Budget Office said it assumed many people would buy insurance rather than pay the penalty because “people basically want to be law-abiding,” Holtz-Eakin said.

The Supreme Court, in its June 28 decision, said that refusing to buy insurance doesn’t break the law.

“It’s now just a calculation between the tax or buying insurance, and more people are going to pay the tax because it’s cheaper,” Holtz-Eakin said. The penalty starts at a minimum of $95 in 2014, rising to $695 in 2016 and increasing at the rate of inflation thereafter.

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