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The Health-Care Law's Mandate: A Tax on Young Americans?

June 28, 2012
URL: http://www.entrepreneur.com/article/228802

While the U.S. Supreme Court ruled to keep the health-care law intact, some say that it dealt a cutting blow to young Americans by way of a brand new tax.

Thanks to the 2010 Affordable Care Act, young Americans up to age 26 can stay on their parents' health insurance policies. And while it's true that those who can't take advantage of a parent's policy and those who are 27 and older and aren't already covered will have to purchase health insurance, that was true before the Supreme Court made its ruling today. So what changed?

Simply, the mandate is now being considered a tax. The majority of Supreme Court justices today agreed that the mandate was constitutional, which sidelined the other questions attached to the case. But in order to arrive at this decision, the way they considered the mandate -- that is, the key provision that requires uninsured adults to purchase health insurance or pay a penalty -- would change. Instead of treating it as a command for Americans to purchase insurance, it became a tax if they don't.

As Chief Justice Roberts put it, "the mandate can be regarded as establishing a condition -- not owning health insurance -- that triggers a tax -- the required payment to IRS.

In other words, the court ruled that the mandate was constitutional -- but only because the penalty levied on those who refuse to buy insurance would be considered a kind of tax. That would squarely fall under Congress' taxing authority rather than its power to regulate commerce between the states.

To be sure, the penalties and the actual structure of the law have not been altered. For those who refuse to purchase insurance, there's a fine ranging from $695 for low-income Americans to $12,500 for wealthy families.

But a tax is a tax, and some critics are now saying that young people will be the ones left holding the bill -- not exactly a comforting thought for all the young entrepreneurs out there. "On some level, it is a bit of a bait and switch," says Dan Danner, the president and CEO of the National Federation of Independent Business.

"We're going to have an enormous new tax that will in particular hit young people. The perception would have been different if more young people realized that this is a big new tax on you," says Danner. "The law will become less popular, not more. I think there are going to be a lot of young people who are surprised by this."

Paul T. Conway, president of Generation Opportunity, an Arlington, Va.,-based Gen Y advocacy group, had this to say about the Supreme Court's decision: "President Obama's health care law stands as one of the largest tax increases in American history, it will be paid for by young Americans, whose dreams and plans for the future have already been derailed by failed policies that have denied their access to full-time, meaningful jobs in their chosen career paths." Conway who formerly served as the chief of staff for the US Department of Labor adds that "Elections have consequences, and young adults will be organizing themselves far more actively than some might assume -- they will not settle for leadership that ignores their concerns, limits their freedoms, and continues to bankrupt their futures."

Of course, the difference between the health-care law's mandate and a tax -- regardless of which term the Supreme Court leans on -- is it's not criminal to forego the purchase of health insurance.   Paul Starr, a professor of sociology and public affairs at Princeton University, notes that the government may have difficulty enforcing fines. It can't impose liens on the property of those who don't comply, nor can it levy criminal sanctions. The government can't even garnish their wages, he says. It can, however, withhold people's tax refunds. In the end, though, Starr believes that the mandate will be mostly ignored.

Click here, for more on the Supreme Court's health-care law decision.

What are your thoughts on the health-care law and how it might affect young entrepreneurs? Leave a comment and let us know.