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Regulation and Compliance > Federal Regulation > IRS

View: Taxpayers handed another broken Obamacare promise

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(Bloomberg View) — If you got health insurance subsidies last year, and you’re worried that you got too much in federal tax credits and will be faced with a huge tax bill for repayment, then you can worry a little less: The IRS says that people who are liable for repayment (“clawback”) of excess subsidies won’t have to pay by April 15.

See also: IRS waives penalties for late payments linked to PPACA.

It’s not relieving you of the obligation to repay; it’s just saying that you won’t be liable for a penalty if you don’t repay by the deadline. Interest will continue to accrue, but the interest rates that the IRS charges are actually pretty reasonable (and probably much better than what your credit card company charges). It’s the failure-to-pay penalties it layers on top — half a percentage point a month, with even stiffer penalties for failing to file — that really make your tax bill add up fast.

The IRS emphasizes that this is a one-time-only deal, just for 2014. But I’m not sure if you should believe that. This emphasizes one of the problems we’ve spoken about a lot in this space: The political will to impose the costs of the Patient Protection and Affordable Care Act (PPACA) — aka Obamacare — is a lot less strong than the will to distribute the benefits.

At every turn, when it has come time to actually make people bear the price, the government has blinked. The employer mandate was delayed, cuts to Medicare Advantage were delayed, deadlines to purchase insurance were pushed back, and now the need to repay excess subsidies has been eased.

Remember, these payments were increased just a few years back in order to pay for the repeal of a different, unworkable part of the bill: the provision that would have required people to issue 1099s to anyone who sold them more than $600 worth of stuff.

But the political logic is inescapable: A bunch of people are about to find out that they got too much in subsidies, and now they owe the IRS hundreds, possibly even thousands, of dollars. Many of those people won’t have the money, and they are about to get very upset.

So the Barack Obama administration did what it has done before: nursed the program forward with administrative rulings that minimize the political blowback. Presumably the idea is that by the time it actually lets the cost side take effect, so many people will be getting subsidies that it will be effectively impossible to repeal.

Some of the “nursing” measures they might be tempted to take are existential threats to the bill, such as easing off the individual mandate.

See also: Feds explain individual mandate exemptions.

But this, like most of what it has already done, does not threaten Obamacare’s viability as a system. What it does renege on is the promise that the bill would be deficit-neutral — even deficit-reducing! What it does is raise the cost of a program that was sold on the promise that it would reduce costs.

Though the Congressional Budget Office has stopped scoring it, after all these changes, I find it hard to believe that Obamacare is now deficit-neutral, much less deficit-reducing. Of course, temporary transitional relief is not that expensive; it’s just a year of revenue. But it’s not going to get easier to impose these costs going forward. If anything, it will get harder, because people will be used to things the way they are. Moreover, costs imposed in year one would be at least partially offset by the new benefits, in terms of premium subsidies.

Costs imposed in years two to infinity will not be viewed as the unfortunate costs of getting new benefits; they’ll just be seen as new costs that those who pay will very much resent. I would be very surprised indeed if the administration suddenly rediscovered its backbone in 2016, with its party staring down an election in which Obamacare will very much be an issue. And even more surprised if a future administration decided to be the party pooper that cracked down on costs after the Obama administration got to be the one handing out the goodies.

There is one possible piece of counter-evidence to my thesis: The employer mandate, which the administration did finally impose on large employers after a year delay. And yet, I don’t think this is much of a counterweight. The 2015 version of the employer mandate is so weak that it’s effectively not that much different from no mandate, as almost all large firms already offer their employees health insurance. Symbolically, the mandate still exists; practically, it doesn’t, until the government really does demand 95 percent coverage from all companies with more than 50 employees.

This ruling by itself is not a particularly big deal — it’s just delaying the repayment of what people owe, not forgiving it. Presumably there’s some permanent loss of the income that would normally have been expected, but the gears of the government will not therefore grind to a halt. But it is important as a symptom of a broader tendency in the administration, to be free with the spending and not so free collecting the revenue needed to pay for it.

As I say, this is not in any way an existential threat to the program. It’s just a creeping leak in the taxpayer’s wallet.

See also: Witnesses: PPACA income verification is a mess.


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