Merrill Matthews, Contributor of Forbes.com
No insurance? No money? No want ObamaCare? No worries. You too can game ObamaCare’s mandate to buy health insurance. It’s easy, and it may even be in your financial self-interest.
ObamaCare requires nearly every American to have health coverage. Those who don’t have employer-provided coverage, or participate in a government-run program such as Medicare or Medicaid, will have to enroll in one of the new health insurance exchanges if they want to get ObamaCare-qualified coverage along with the federal subsidies to help pay for it. Those who choose to remain uninsured will be slapped with a penalty.
For individuals the penalty starts at the greater of $95 or 1 percent of income in 2014, rising to $695 or 2.5 percent of income by 2016.
The penalty is a “stick” intended to force people to get coverage. But even though President Obama repeatedly claims the ObamaCare house of cards would collapse without his mandate, the legislation’s drafters made it very easy to avoid the penalty. That’s why Team TISI -0.35% Obama is in a projectile sweat and trying to push the young and healthy to enroll now, before they figure out how easy it will be to game the system.
Under the law, the Internal Revenue Service is the penalty-collection agency, but its options are limited. The IRS’s only collection authority is to take the money from a worker’s federal withholding tax.
Employers withhold part of their employees’ compensation and give that money to the government to cover federal income taxes. If at tax time workers have withheld more than they owe, the government gives them a refund; if they haven’t withheld enough, they pay the difference, which can include a usually small penalty for under-withholding.
Millions of Americans allow their employers to withhold more than they will owe in taxes, even though they have the right to reduce their withholding. But over-withholding is bad financial management because workers are essentially lending their money to the federal government interest free.
But if an uninsured worker only withholds enough to meet his tax obligation, the IRS cannot collect the ObamaCare penalty because there is no withholding money available.
Thus the uninsured, as well as those who buy non-qualified health coverage (i.e., coverage that doesn’t meet ObamaCare requirements), can avoid paying any penalty simply by closely managing their withholding contributions.
Once people find out just how expensive ObamaCare coverage will be, even with the federal subsidies, being uninsured may seem like a reasonable option. For example, a new Kaiser Family Foundation study estimates that a 40 year-old-male making $30,000 a year and buying family coverage would receive enough in federal subsidies to cover about 66 percent, or $5,548, of the cost of an average “silver” policy, which Kaiser estimates to cost about $8,250.
But that means the family would still have to spend nearly $3,000 out of pocket for its coverage—a lot of money for a $30,000 income. And for some reason Kaiser’s estimated cost of a family policy happens to be $7,500 less than the organization reported was the average cost of an employer-provided family policy in 2012.
While the new Kaiser study is looking at the individual market where people buy their own coverage, the elimination of underwriting and the new mandated coverages will force the individual market to more closely resemble the employer group market—and push premiums up closer to the average employer-provided policy.
In other words, ObamaCare is not an “Obamaphone” where lots of people get something free. The newly insured may be forced to spend thousands of dollars out of their own pockets. Once people realize they can game the ObamaCare penalty by (1) remaining uninsured, (2) withholding only what they need to pay their taxes, and (3) signing up for ObamaCare (during “open season”) if they need coverage, it’s possible millions will consider being uninsured or buying a limited, non-qualified health policy a good bet.
Democrats could try to fix the problem they alone created. For example, they could propose giving the scandal-ridden IRS much more power to go after the uninsureds’ assets. How about putting Lois Lerner in charge? She’s the IRS employee on paid leave who played a role in delaying conservative groups’ tax-exempt status.
Of course, one should NEVER encourage people to break the law, and the mandate to have coverage is the law—Obama’s law. But thanks to U.S. Supreme Court Chief Justice John Roberts, we know that the penalty for not getting coverage is really a tax—though apparently Roberts is the only one in the whole country who believes that.
Anyway, while tax evasion is against the law, tax avoidance is an American hobby. And ObamaCare provides an easy and effective way to avoid the uninsured tax (aka, the penalty). Millions of Americans may find that doing so is in their financial self-interest, and thwarting Obama’s Big Brother effort to manage their health care may even be fun. Game over.
Merrill Matthews is a resident scholar at the Institute for Policy Innovation in Dallas, Texas. Follow at http://twitter.com/MerrillMatthews