A report last week from the Congressional Budget Office estimated that 1 million Americans will be required to pay a penalty to the Federal government by the end of next year as a “tax” for declining to purchase health insurance under Obamacare’s individual mandate provision.
In all, CBO now expects about 4 million people — including the estimated 1 million low-income Americans who live below the government’s 200 percent poverty threshold — to pay the Obamacare penalty for 2016.
From the report:
“CBO and [the Joint Committee on Taxation] JCT’s estimates of the number of people who will pay penalties account for likely compliance rates as well as the ability of the Internal Revenue Service (IRS) to administer and collect the penalty payments.
All told, CBO and JCT estimate that about 4 million people will pay a penalty because they are uninsured in 2016 (a figure that includes uninsured dependents who have the penalty paid on their behalf). An estimated $4 billion will be collected from those who are uninsured in 2016, and, on average, an estimated $5 billion will be collected per year over the 2017-2024 period.
Of the 1 million Americans the government regards as “low-income,” roughly 200,000 will earn gross income of less than 100 percent of the government’s poverty baseline; another 800,000 will earn less than 200 percent of the gross income poverty line, which places them in a category of low-income earners eligible to receive a host of Federal poverty entitlements. For a breakdown of how the Department of Health and Human Services assesses “poverty” as a ratio of household size to annual income, see the department’s 2014 poverty guidelines.
The CBO graph below illustrates the Obamacare penalty forecast as a function of income demographics:
“In general, households with lower income will pay the flat dollar penalty (with adjustments to account for the lower penalty for children and the overall cap on family payments), and households with higher income will pay a percentage of their income,” the report indicates.
The Obamacare opt-out penalty is the greater of a flat “tax” ($695 in 2016 and pegged to inflation thereafter) or “a percentage of a household’s adjusted gross income in excess of the threshold for mandatory tax-filing” (2.5 percent in 2016 and beyond). The CBO is expecting most people living beneath the 200 percent-of-poverty line to pay the $695.
Last week’s report represents a marked downward revision of the CBO’s 2012 prediction that roughly 6 million people would end up paying the Obamacare tax. If that sounds like a good thing, it’s a function of your point of view: CBO is also anticipating a commensurate drop in expected Obamacare funding, thanks to the drop in penalty payments. And many Americans who the CBO originally predicted would have to pay the penalty have since been lumped into the entitlement group of low-income Obamacare recipients who qualify for exemptions.
“The decrease in the number of people who are projected to pay the penalty largely stems from an increase in CBO and JCT’s projection of the number of people who will be exempt from the penalty,” the CBO stated. “That increase is attributable in part to regulations issued since September 2012 by the Departments of Health and Human Services and the Treasury and in part to technical updates and changes in the economic outlook.”