Taxation & Estate Planning

Obamacare Plans to use the IRS to Police New Healthcare System

By Darrin Mish

The government?s proposed healthcare reform bill contains a lot of issues that you should be very concerned about.  For one thing, your tax details will no longer be private if the bill is passed.  If you are clueless as to what tax details have to do with healthcare, listen up.

Under the 1,000+ pages of legislation currently being reviewed by Congress known as H.R. 3200 or The Affordable Health Choices Act, the government is making it mandatory for every American to have health insurance.  That is a noble objective, but there?s more to it than meets the eye.

The bill legislates that you have to have an acceptable health insurance coverage.  What?s acceptable is stipulated in the bill itself.  If you are not covered by health insurance at all or your insurance coverage is not acceptable, then you will be penalized.  To carry out the provisions of the bill, the government would have to verify that you have acceptable insurance and penalize you if you do not.  The agency tasked with both these responsibilities is the IRS.  Here?s how they intend to do it.

When you fill in your tax returns, you will be required to declare in your 1040 Form whether you have acceptable health insurance.  At the same time your insurance company will be filling in their own forms giving information on the health coverage they provide to taxpayers.  Using these two declarations, the IRS will verify whether you are adequately covered with health insurance.  If you are, then all is fine but if you are not, then you will be penalized with substantial fines administered by the IRS.  But what about those who cannot afford health insurance?

The bill has provisions that give an affordability credit that is a subsidy in the form of a refundable tax credit from the IRS to purchase health insurance.  But here?s the kicker.  To assess whether you are eligible to obtain the affordability credit, the House Choices Administration will be empowered under the bill to obtain confidential personal tax information of taxpayers from the IRS.  Herein is the link between healthcare and your tax details.  Section 431(a) of the Act says that the IRS is obligated to reveal taxpayers information to the Health Choices Commissioner for the purpose of determining their affordability credits.  Among the details to be revealed are your filing status, modified adjusted gross income, the number of dependants you have and any other relevant information prescribed by regulation.

At present, it is a felony to obtain such sensitive information unless it is a matter of extreme importance such as criminal investigation purposes.  But when the new healthcare bill becomes law, all this will change.  For the millions of taxpayers who genuinely cannot afford the type of healthcare the bill mandates, their private tax information goes into the system whether they like it or not.

Certain versions of the bill even grants accessibility to your tax records for much less important reasons such as for the Social Security Administration to find senior citizens eligible to participate in the prescription drug program.

In view of such enforced disclosure of one?s private tax details, you might be wondering whether all this is reform or reveal.

Besides the legalized invasion of privacy by the IRS, there are another 3 causes for concern over the IRS in this whole affair.  The first is whether the IRS can handle this humongous volume of work.  They are already not very efficient with their present responsibilities, what more with an addition of another 300 million Americans health insurance requirements to monitor.

The second area of concern is the IRS' ability to monitor the process so as to prevent any abuse of the system.  There will inevitably be people making fraudulent claims for affordability credits.  Will the IRS have the capacity to police this matter?

Finally, there is the concern about whether the IRS is the appropriate agency to be in charge of administering and enforcing the new healthcare reforms in the first place.

The Democrats who endorse the bill are hoping that the incentive of receiving affordability credit subsidies to purchase health insurance will offset the concerns about the invasion of privacy and other improper elements of the legislation.

Fat hopes.

Full post as published by IRS Problem Solver Blog on September 04, 2009 (boomark / email).