The IRS and Healthcare – What Next

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The proposed new Healthcare Reform Bill will see Americans compelled to accept the government-sponsored insurance coverage or find their own coverage that conforms to the stipulations of the coverage in the Bill. Failure to have adequate insurance would entail a tax of 2.5% of the excess of your modified adjusted gross income over the amount of gross income specified in section 6012(a)(1). The Bill also provides for employers to have their in-house insurance coverage provided the extent of coverage adheres to what is in the Bill. If it does not, the employers have to pay a tax of 8% of the salaries of the employee. Thus, the IRS becomes the tool through which the Bill is enforced.

Thus, the employers providing their staff with in-house healthcare coverage must submit details of their employees like names, addresses, Social Security numbers, extent of coverage, period of coverage etc to the IRS. The Bill authorizes the Secretary of Health and Human Services to request for any additional information required. Then for those employees who come under their employer’s healthcare scheme, the IRS checks for compliance with the provisions of the Bill. But employees whose employers do not have any healthcare scheme would have to submit their own insurance coverage to the IRS for evaluation. This would entail the IRS cross checking income tax returns with insurance coverage for each taxpayer for compliance.

But it is common knowledge that each insurance policy coverage is different in their extent of coverage, conditions, exclusion clauses etc. Even when two policies offer the same coverage against the same accident or illness, there are still differences in the fine print. Thus the question is how the IRS would deem a taxpayer’s policy as compliant or not with the coverage stated in the Bill.

Clearly taxpayers who do not have insurance are now forced to seek to be insured for the lowest cost possible. But as insurance costs are likely to go up, this Bill would seem to penalize the poor.

Another possibility is the mushrooming of both traditional insurance companies and fly-by-night ones all rushing to claim their slice of the healthcare insurance pie now that everyone is compelled to take up some insurance. Then there is the issue of what type of insurance they offer and whether the companies can honor their commitment to pay claims when the unfortunate happens.

It remains to be seen how things will pan out and what clear guidelines the IRS will give pertaining to this if the Bill is passed by the House and Senate.

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