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The “Shared Responsibility Payment”: A Closer Examination of the Affordable Care Act‘s New Tax

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On Tuesday, July 10, the House Ways and Means Committee held a hearing to examine  what effects the Supreme Court’s decision to uphold the individual mandate portion of the President’s Affordable Care Act (ACA) as a tax will have on Congress' ability to levy and collect taxes.

The individual mandate, now being referred to as the “shared responsibility payment” is the segment of the ACA which is meant to compel every individual to purchase government-approved health insurance or face a penalty in the form of a tax.

Championed by Ways and Means Chairman Dave Camp (R-MI), the Committee called forward a panel of law scholars to testify as to how the rendering of the ACA from mandate to tax will affect the relationship between government and its people.

Walter Dellinger, a Partner with O’Melveny & Myers LLP in Washington, DC, was one of the supporters of the ACA, and attempted to downplay the significance of the tax itself, citing a Congressional Budget Office estimate that only 1 percent of the population will be affected by the tax.

In his testimony, Dellinger also took care to assert that the “shared responsibility payment” is necessary for the rest of the ACA to function properly, since the ACA mandates that those with preexisting conditions cannot be denied coverage:

 “The ‘shared responsibility payment’ is merely a financial incentive for people to have adequate health insurance...it is a payment that few Americans will ever make or even notice.”

However, Steven G. Bradbury, a Partner with Dechert LLP, had a very different analysis of the effects this new tax is likely to have on Americans. Because the ‘mandate’ has morphed into a less daunting ‘tax’, and because paying said tax will by most estimates be much less expensive than purchasing the government-approved insurance package, a much larger number of individuals than previously assumed will likely skip the insurance all together and pay the tax instead according to Bradbury. Not only would this undermine the very premise of the ACA, which is to maximize coverage, but it could lead to Congress becoming irked at the low coverage rates and raising the tax even higher, to compel more individuals to purchase health insurance.

Bradbury also dispelled the assertion that “few Americans would even notice” this new invasive tax, by demonstrating how the mandate-turned-tax was primarily intended to force Americans to subsidize the massive costs incurred by insurance companies who would suddenly be forced to accept everyone into their programs no matter how ill they might be:

 “The individual mandate was originally enacted to compel millions of Americans to pay more for health insurance than they receive in benefits as a means to subsidize the costs that the Act’s guaranteed-issue and community-rating requirements will impose on private insurance companies.”

In other words, Americans are being forced by government to purchase more insurance than we would otherwise choose to, so that we can hand money to insurance companies whom government has forced to take on more policies than is profitable or wise.

It is obvious that upon closer inspection, the Affordable Care Act and its new “shared responsibility payment” are no more appealing to fiscal conservatives and civil libertarians than they were from far away. The ability of Congress to tax individuals into compliance and to continue to raise that tax if the desired behavior is not met represents a new threat to the sovereignty of every American citizen.

Many in the House of Representatives understand the threat that the ACA raises both in terms of individual liberty and economic wellbeing, and subsequently voted to repeal the entire act  this Wednesday, with five Democrats crossing party lines to join their Republican peers in the 33rd effort to repeal.

Although the vote was largely symbolic, as the Democrat-controlled Senate has little chance of allowing a repeal vote, it demonstrates that the majority in the House is not turning deaf ears to the 47 Percent of Americans who oppose the law.