IRS Doesn't Have Enough Power to Enforce Health Insurance Mandate

Published: Fri 30 Apr 2010

Lucas Eichmann

Last year, the IRS processed over 230 million tax returns, doled out 127 million refunds, and fielded approximately 68 million phone calls. The agency has the charge of enforcing a 71,000-page tax code that is notoriously complex.

Beginning in 2014, the IRS will have yet another job to do: verifying that every American has health insurance. Under the new health care reform law, people who can afford coverage but do not purchase it will have to pay a fine as large as $695 or 2.5 percent of their income, whichever figure is higher. Over four million Americans may face penalties as large as $1,000 by 2016 if they refuse to buy health insurance, the Congressional Budget Office estimated last week.

The IRS will have to enforce the mandate, or at least try to.

Agency's Hands Are Tied

When people do not pay their taxes, the IRS has the authority to seize property, impose levies or liens, and request jail time. With people who do not comply with the health insurance mandate, however, the IRS is prohibited from using any of these tactics. According to IRS Commissioner Doug Shulman, really the only thing the agency could do to those who will not purchase coverage is withhold refunds from them.

Nevertheless, compliance with the coverage mandate will for the most part be voluntary, explains law professor Timothy Jost of Washington and Lee University. "By taking criminal sanctions and liens and levies off the table, the IRS' hands are tied, to a considerable extent."

The IRS is "being put in a position where it will be sending notices that will annoy people" but not do much else, explains James Maule, a Villanova law professor and author of a tax blog called MauledAgain. "It's basically designed for failure."

Shulman believes that most taxpayers will comply with the mandate. The outcome of a similar program in Massachusetts that mandates health insurance seems to support that belief. In 2008, for example, 98 percent of taxpayers who had to include health insurance information in their state tax returns did so, and 96 percent had medical coverage, according to a report from the Massachusetts Department of Revenue.

Concerns about the IRS' Expansion of Power

Critics of the health insurance mandate have serious misgivings about the dramatic expansion of the IRS' power that will result from the new law. According to the Congressional Budget Office, the IRS will require $5-$10 billion in additional funds to enforce the mandate. Some estimates also predict that the agency will have to hire another 16,500 agents to enforce the law. Activists who want to eliminate or downsize the IRS are up in arms over the expansion.

Moreover, critics are also concerned that the enforcement of the mandate will impede the IRS' primary responsibility of collecting taxes. The IRS is already oversubscribed, with only 64 percent of taxpayers actually reaching an IRS representative when they call the agency. Opponents fear that the additional enforcement duties will distract the agency from its fundamental purpose.