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IRS faces crucial health care law test to enforce penalties for no insurance

– The success of the Affordable Care Act could ultimately turn on the performance of an agency that has so far eluded the public spotlight amid the program’s tumultuous rollout.

Whether the new law can be enforced will be up to the Internal Revenue Service, an already beleaguered agency charged under the act with carrying out nearly four dozen new tasks in what represents the biggest increase in its responsibilities in decades. None is more crucial than enforcing the requirement that all citizens secure health insurance or pay a penalty.

But those efforts have been hampered by a one-year delay in applying new insurance regulations to large employers. Those employers had been expected to provide insurance coverage information that the IRS would use to help identify who has insurance and who does not.

While failures in launching the federal insurance website and online exchanges have thrust the Department of Health and Human Services to the center of public attention, the IRS also has a huge role in carrying out the law, including helping to distribute trillions of dollars in insurance subsidies and penalizing people who do not comply.

The fine is intended to encourage healthy people to enroll even if they do not have an immediate need for care. If the elderly and the sick dominate the ranks of those who sign up, it could lead to what health economists call an “insurance death spiral” of rapidly escalating costs, premium hikes and declining enrollment.

Besides lacking coverage information that would help the agency enforce the “individual mandate,” the IRS also is hamstrung in penalizing those who do not sign up. The lawmakers who drafted the health care law intentionally barred the IRS from using its customary tools for collecting penalties – liens, foreclosures and criminal prosecution. The only means of collecting the fine is to essentially garnish tax refunds for people who overpaid their taxes.

Enforcing compliance with the law is just part of what one Treasury Department official calls “the largest expansion of IRS responsibilities in recent history.” And the increased workload comes as the IRS is suffering from high turnover of senior managers, years of budget cuts and congressional inquiries into the alleged politicization of the agency.

“This is really quite a heavy lift,” former IRS commissioner Mark Everson, who served under President George W. Bush, said in recent testimony on Capitol Hill.

IRS officials say that they are on track to meet the law’s requirements and that their computer systems are performing as hoped. They acknowledge that some systems involving other departments – such as those distributing subsidy checks to insurers – are not completely built. But the officials note that most of the new responsibilities for the agency do not begin in earnest until the 2014 tax season.

Some of the tasks are so vital to the success of President Barack Obama’s health care initiative that any uncertainty about whether the IRS can do its job raises doubts about the overall endeavor. Health policy researchers say they know relatively little about what level of enforcement is necessary to nudge citizens into buying coverage or whether the health law’s low fees – $95 in 2014 or 1 percent of income, whichever is greater – will succeed in doing so.

“We should be absolutely clear we don’t know how this will work,” said MIT economist Jon Gruber, referring to the size of the penalty. Gruber helped design the mandate used in the insurance plan Massachusetts launched six years ago.

If healthy citizens think there is little likelihood of credible enforcement, many may decide to flout the insurance requirement, which could lead to a dangerous concentration of elderly and sick people in the insurance pools.

“I now think there is little hope we are going to get enough younger, healthy people to sign up, and that means that this law is in grave danger of financial collapse,” Robert Laszewski, president of Health Policy and Strategy Associates, a health care industry consultant in Alexandria, Va., said in an interview about IRS enforcement.

Other health insurance experts saypublic education may initially be more important than enforcement.

“At the end of the day, people will sign up,” said Lawrence Jacobs, a University of Minnesota political scientist who has studied the implementation of health systems. “We know from experience that a large number of people sign up for insurance simply because they are law-abiding citizens who don’t want to be in violation of the rules.”

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