On March 21, 2010, the House of Representatives approved health care legislation that made significant changes to the manner in which personal health insurance is offered, sold and purchased in the U.S.
Generally, the law re-ordered the health care insurance market to resemble public utilities. While the insurance companies are privately owned entities their product is heavily regulated by the federal government.
The legislation passed following a contentious and highly partisan debate. For the most part, Democrats supported the new insurance plan while Republicans opposed it, and the final partisan vote allowed passage in the House by a mere margin of seven representatives (219-212).
Likely the most controversial position in the statute is the individual mandate that requires every American to have health care insurance with coverage based on a government designed policy template.
In 2014, those individuals who do not have health insurance from another source must buy acceptable coverage at their own expense, and failure to do so will subject them to a government-imposed “tax penalty.”
Policies will be offered to the uninsured by state run “insurance exchanges.”
The policy terms required by the federal government under the law are referred to as “minimum essential coverage” and include required coverage for: emergency services; maternity and newborn care; mental health and substance abuse treatment; wellness services; chronic disease assistance; pediatric services; and dental and vision care for children; and rehabilitative assistance.
The secretary of the Department of Health and Human Services has authority to define the essential coverage terms and to set the minimum benefits package. Since this benefit package is not yet defined the cost of policies offered by the state-run insurance exchanges is not presently available.
The good news for third-party providers of health insurance is that if their policy terms fall short of the minimum essential coverage there is no requirement to revise the existing policy.
The penalty for failure to have health care insurance is not insignificant.
In 2014, this tax penalty will be $95 or 1 percent of annual adjusted gross income, whichever is greater. The following year the penalty increases to the greater of $325 or 2 percent of annual AGI. This penalty continues to increase in similar fashion for following years.
Additionally, this penalty is calculated “per person” with children counting as one-half of the adult rate. These penalties will not be applicable to persons earning an income lower than a specific threshold that the HHS secretary will determine.
Authority to collect unpaid penalty taxes rests with the IRS, which cannot use liens against property or levies of personal monies.
The constitutionality of the individual mandate will be decided next year. The Supreme Court recently agreed to hear a case emanating from the 11th Circuit Court of Appeals in Atlanta specifically challenging the constitutionality of the individual mandate provision. Over 25 state attorneys general have joined together in this case.
Although other similar cases were available for Supreme Court review, a decision regarding the 11th U.S. Circuit Court dispute will effectively serve as the final word on this issue. The court is expected to hear oral argument in March 2012 and render a decision in June, just in time to make it a significant issue in the upcoming presidential campaign and for the 32 million people without health insurance.
Jack E. Karns, S.J.D., is a professor of business law in the College of Business at East Carolina University