"The Taxman Cometh" by Nancy Turnbull

The process of implementing Chapter 58 has been full of surprises. For me, one of the biggest is that April 15 has come and gone with so little public outcry about the individual mandate (IM). The IM is the most radical feature of the state’s health reform law. (Before any of you readers gang up on me, remember that “radical” means fundamental, extreme or drastic—it carries no value judgment about good or bad). No state has ever imposed such a broad requirement on its residents to purchase health insurance, nor levied state tax penalties on people who don’t comply. We’ll understand more about how this provision of the law is working when the state Department of Revenue (DoR) releases information from the 2007 state tax filings, which should be soon. I, for one, am really curious to see what the data show.

We will all need to interpret the DoR data with caution.

Any tax information that is released soon will be preliminary. It won’t give us a complete picture of how the IM is working because so many people don’t file tax returns, either because they don’t have to do so, or because they break the law. According to national estimates, as reported by Jonathan Gruber at a recent Connector meeting, 10-15% of people do not file taxes. The percent could be higher or lower in Massachusetts but the important point is that it’s a big number. Most of the legal non-filers probably have relatively low incomes, so they are more likely to be at risk for being uninsured. Who knows about the tax scoff laws? Not having information from both of these groups creates a real hole in our understanding of who may still be uninsured. Then there will be a gap because lots of people likely requested extensions for filing their taxes. The IRS estimates that 7-8% of tax filers nationally request extensions, so this is likely to be another big number in Massachusetts. National data indicate that people who get extensions are more likely to have higher incomes than average, and hence are more likely to be insured. Together, these factors create a significant hole in the information that will be available, and mean that we won’t be able to get a full picture from the tax filings about many uninsured people remain in the state, and who they are.

But even with this important caveat, the tax filings will help us begin to answer some important questions. Here are a few:

How many tax filers were exempt from the IM?: Adults are required to purchase health insurance only if they have access to coverage that is affordable based on the state’s affordability schedule. We will begin to get a much better sense of how many people do not have access to affordable health insurance, and who they are, by income, age, geography, employment status and other characteristics. One important issue here is how many people with incomes below 300% FPL (the income standard for Commonwealth Care) were eligible for employer-sponsored coverage that costs more than the Connector’s affordability schedule? This information will help the Connector in its continuing discussion about whether, and how, to permit lower-income people with access to employer-sponsored coverage to join Commonwealth Care.

How many tax filers asked for a hardship waiver? People who have access to affordable coverage but don’t purchase it can ask for a waiver from the IM tax penalties, if they can meet certain hardship criteria. By learning more about how many people have a financial hardship, and who they are, we will understand more about when and why “affordable” coverage is actually not affordable.

How many tax filers paid the tax penalty? The penalty for failing to comply with the IM in 2007 was fairly low, only $219. Some taxpayers probably paid a penalty because they didn’t know about the IM until they filed their taxes. But I think it’s likely that many more people choose to pay the penalty because it was much cheaper than buying health insurance. We won’t know from the tax filings why people didn’t buy health insurance. But we will know who didn’t. I am particularly interested in knowing the age, gender, and income level of people who paid the penalty. This information will either confirm or dispel some of the assumptions people are making about who will, and won’t, purchase health insurance when the penalties for not doing so are quite low.

The tax filings will help us learn more about how the IM worked in its initial year as a means of expanding health insurance. And the information will undoubtedly provide lots of fodder for both proponents and critics of the IM to use as Chapter 58 moves into its third year of implementation. Who knows what surprises lie ahead?

Nancy Turnbull
Harvard School of Public Health