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With Individual Mandate Softened, Americans Paying a Very Unfair Obamacare Tax

With Individual Mandate Softened, Americans Paying a Very Unfair Obamacare Tax
Image credit: investopedia.com

By tinkering yet again with Obamacare, the administration has just set in place one of the most unfair tax policies ever levied on Americans, deciding that some people have to pay taxes while others in the same class don't.

The Obama Administration has essentially waived the individual mandate under the Affordable Care Act, saying people can seek a “hardship” exemption if they lost their coverage. Actually, it is much more complicated than that: If you lost coverage as a result of Obamacare because your policy was not considered good enough, you can either seek a substandard catastrophic policy in the market (which likely still costs more than the one you had) or just carry no insurance at all, at least through all of next year.

Related: Is This the Worst Twitter Pitch for Obamacare Ever?

So, mandating insurance for all Americans has led to some Americans now not having insurance, which makes it kind of difficult to call it a “mandate.” It also suggests that the few who were able to enroll in Obamacare once their private insurers were forced to cancel their policies can now not pay for the new coverage and just claim an exemption. If you battled through the tech glitches, enrolled and actually wrote a check, you're out of luck. You get the privilege of paying for your shiny new insurance, while millions more can keep those premium dollars in their own wallets.

It is another curious move by the administration, which has approached Obamacare as if it were some kind of dreadful stew – one where it didn't quite know the recipe in the first place, so it has proceeded to add ingredients and spices, some with contradictory flavors, in the hopes that we all have a nice meal. Instead, it is proving hard to swallow.

And, unintentionally, it may be setting dangerous ground for the government when it comes to tax policy. Remember that the individual mandate was ruled constitutional by the Supreme Court because it was a tax. As the Court ruled, Congress could force people to buy coverage under its broad powers to levy taxes. The Internal Revenue Service, not Health and Human Services, is the primary authority when it comes to ensuring compliance and payments of penalties. In fact, the IRS was given the power to write the all-important regulations for Obamacare when it came to enforcing the terms of the mandate.

Related: Latest Obamacare Delay Means Small Business Will Have to Wait. Again.

But, now, one can be forgiven for asking whether the president has just told a group of people that they don't have to pay a tax that everyone else is required to pay. If you liked your old insurance plan, couldn't keep it, and now don't like the price of the plans you see (or struggled, because of government incompetence, to even find a way to replace it), you can simply sit on the sidelines without penalty (i.e., not pay the tax) whilst the rest of the country pays higher premiums (i.e., pay the tax).

Such a tax exemption is unprecedented in the law. Never has a president told some people in the same class that they don't have to pay a tax and others that they do. Again, this effects a certain group of people: those who lost coverage because of Obamacare. But, some of those people found replacement coverage, almost always at a higher premium, and are not exempt from the tax. They can't get out of their insurance coverage and reap the benefits of tax exemption now granted to the people who couldn't sign up by the Obamacare deadline.

The administration will no doubt argue that it has broad authority to exempt some people from the health-care tax. Indeed, under the law, there are already exemptions carved out: for people in certain religious sects, for health-care sharing ministries, for the very poor and for those who can claim a hardship. It is the last category, which already exists in law, that will see its definition loosened to allow citizens to escape the individual mandate.

What is not clear is whether the actual uninsured – the people who never had coverage to begin with, thus were the reason coverage was mandated for all – can also get out of paying for insurance for another year.

No matter how you view it, tax policy is now being applied unevenly – and unfairly – to large swaths of the population. That could spur new legal challenges to Obamacare, ahead of the deadline next year for businesses to get on board. For businesses, it could also pose questions. If premium payments to provide health care rise so high, or existing coverage is ruled insufficient, shouldn't companies be able to claim hardship and avoid taxation, too?

But, it should also make policymakers pause: If a law that was intended to make certain that all Americans had affordable insurance now makes more people have no coverage at all, or coverage at very high rates through a tax not everyone has to pay, is it a law worth keeping? 

Related: Obamacare Already Sinking Small-Business Job Growth

Ray Hennessey is Editorial Director of Entrepreneur.com.

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