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The Challenges of Implementing Health Reform Through the Tax System. Janet Holtzblatt Congressional Budget Office February, 2008. New Responsibilities for IRS?. Limit existing subsidies for employer-based insurance. Subsidize taxpayers who buy non-group insurance.

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The Challenges of Implementing Health Reform Through the Tax System

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The Challenges of Implementing Health Reform Through the Tax System

Janet Holtzblatt

Congressional Budget Office

February, 2008


New Responsibilities for IRS?

  • Limit existing subsidies for employer-based insurance.

  • Subsidize taxpayers who buy non-group insurance.

  • Subsidize individuals who have no income tax liabilities.

  • Subsidize small businesses.

  • Enforce mandates (or personal responsibilities).

  • Require agency, other than IRS, to collect premiums.


Possible Reasons to Use IRS

  • Builds on existing tax preferences.

  • Most people file returns.

  • Access to information on income.

  • May complement tax policy goals.


3 Big Challenges

  • Can the targeted population be reached?

  • Can IRS enforce either a mandate or eligibility rules for a subsidy?

  • Can IRS enforce mandates or pay out subsidies in a timely fashion?


1. Can the Targeted Population be Reached?A. Non-Filers


Can the Targeted Population be Reached?A. Counts of Filers and Non-Filers in 2007(Source: JCT; Counts in Millions)


1. Can the Targeted Population be Reached?A. Addressing the Non-Filer Issue

  • Require non-filers to file income tax return (2008 stimulus payments)

  • Require non-filers to file a short form (2007 telephone excise taxes)

  • Effectively exempt non-filers from mandate and provide subsidies through other means (most health proposals)

  • Spread responsibilities between agencies


1. Can the Targeted Population be Reached?B. Providing Tax Benefits to Families with No Income Tax Liabilities


Can the Targeted Population be Reached?C. Targeting Criteria (General)

  • Income tax return contains information on income and family that could be used to target assistance.

  • Confusion, avoidance, and evasion likely when information incomplete or rules are complicated.

    • Family structure

    • Business structure


Can the Targeted Population be Reached?C. Targeting Criteria (Unique to Health Reform)

  • Does individual have health insurance?

  • Is the individual receive another health subsidy?

  • Does the benefit package meet requirements?

  • Did employer drop coverage prior to eligibility for subsidy?

  • What is the value of employer contributions and do they exceed cap?


Challenge 2: Can Tax Rules be Verified and Enforced?2a. Information Reporting (IRS)


Challenge 2: Can Tax Rules be Verified and Enforced?2b. Challenges for Information Reporting

  • Certifying qualifying plan

  • Accelerating timing

  • Receiving information from state programs


Challenge 3: Can Subsidies be Paid in Real Time?3a. Determining Eligibility (EITC Experience)

  • Criteria

    • anticipated annual income

    • marital status on 12/31

    • number of months lived with child

  • Reconciliation when file return at end of year

  • Outcomes

    • 3 percent choose advance payment option

    • 40 percent of advance claimants do not file

    • about 2/3 of those who file misreport advance payments


Challenge 3: Can Subsidies be Paid in Real Time?3a. Using Prior Year Income to Determine Eligibility

  • Advantages

    • Reduces uncertainty

    • Reduces risk

  • Disadvantages

    • Loss of target efficiency

    • Reporting and verification lags reduced, but not eliminated


Challenge 3: Can Subsidies be Paid in Real Time?3b. Does IRS Have Ability? (HCTC Experience)

  • Criteria

    • Eligibility for HCTC monitored monthly

    • Must purchase insurance first before becoming eligible

    • Credit recipients pay premiums to IRS

  • IRS pays full amount (subsidy plus recipient’s contribution) to insurer

  • Outcome

    • Participation appears to be low

    • IRS outsources tasks to private sector


Conclusions

Can the IRS meet the three challenges?

  • Balance targeting and simplicity.

  • Information, information, information.

  • Making recurring payments is difficult with current infrastructure.


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