McClaughry: Scrapping the health insurance penalty tax

By John McClaughry

The House Health Care Committee has brought out a bill (H.524) that at best has nothing to recommend it, and at worst would make Vermont’s health care situation worse for thousands of innocent people.

The main impetus for this bill seems to be the determination of Chairman William Lippert, D-Hinesburg, to defeat any effort by Republicans in Washington to relax some of the restrictive and compulsory features of the Affordable Care Act of 2010.

John McClaughry

John McClaughry is vice president of the Ethan Allen Institute.

A key feature of the ACA was a mandate to purchase federally approved health insurance, enforced by taxing persons for not buying such insurance. The penalty tax was the greater of $695 or 2 percent of household income. This was so unpopular that the Obama administration created fourteen classes of exemptions, including vaguely defined “hardship,” to keep from having to levy its own tax on vulnerable families.

In 2017 the Republican Congress set the Obamacare penalty tax rate at zero, effectively eliminating it. Chairman Lippert, a long-time partisan for universal government-run health care, wants it back in Vermont.

Thus he has pushed his committee to fully reinstate the ACA mandate and tax on working people with incomes above the Medicaid eligibility level and not covered by employer insurance, who don’t enroll in plans offering expensive “minimum essential coverage.” If those people can’t afford to buy such insurance, even with ACA tax credits, his bill , H.524, would lay on a new Vermont tax to force them to buy it.

Lippert is quoted in Politico as saying, “We don’t want to disincentivize people.” His perverse idea of the “incentive” he wants to preserve is threatening people with penalty taxes until they comply, and if they still won’t pay, starting the tax collection process, ending with putting liens on homes and vehicles.

Last year the Legislature passed a Vermont ACA mandate for 2020, and created a 7-person working group to recommend “a financial penalty or other enforcement mechanism.” That group could not agree on a new tax to force working people to buy insurance, but Lippert’s committee decided it was a good idea.

The good news is that last week the House Ways and Means Committee balked at levying that new tax. Its proposed rewrite of H.524 preserves the mandate enacted in 2018, but scraps the penalty tax. Instead, Vermonters would have to indicate on their tax returns whether they had minimum essential coverage the previous year. If they did not, the Department of Vermont Health Access would reach out to persuade them to take advantage of the ACA subsidies.

The House will likely vote on the two versions this week. The odds are that the Lippert penalty tax version will be rejected. This may not be the final episode: The Senate could reinstate it. Gov. Scott’s spokesperson announced on Feb. 2 that “we will not support a financial penalty as a mechanism to induce health care coverage.”

There is more not to like in the Lippert version of H.524. The ACA specifically exempted participants in four well-established health care sharing ministries from the individual mandate. These are faith-based groups whose participants each month make payments sufficient to meet the health care expenses incurred by members the previous month. More than 500 Vermonters belong to these groups, and the number is likely to grow.

The working group refused to support an individual mandate that would strip these caring and sharing people of their exemption from a penalty tax. The only advocate in the group for removing this exemption was the representative from Blue Cross Blue Shield of Vermont, supposedly a socially conscious mutual insurance company. The demand for corporate welfare never flags.

Lippert declares of health sharing ministries that “this isn’t insurance.” He’s right; it’s not. It’s people giving from their hearts to succor their fellow believers in need. No matter, to a legislator whose motto seems to be “No Escape!” If the Legislature should ultimately revive the penalty tax, the health sharing ministries should be given the ACA exemption, alongside the religious conscience exemptions for such groups as Christian Science.

Both versions of the bill mandate making small businesses of up to 100 employees (up from the current 50) be pooled to their competitive disadvantage with the individual market pool. That needs to be dropped. But the legislative rejection of the penalty tax would certainly show that even a left-leaning legislature has enough good sense not to lay new tax burdens on vulnerable working families.

John McClaughry is vice president of the Ethan Allen Institute.

Images courtesy of Wikimedia Commons/Alex Proimos and John McClaughry

3 thoughts on “McClaughry: Scrapping the health insurance penalty tax

  1. Medicare for all.Lay off all administrators,billing and insurance people, and hospital ceo’s.
    20% of the GDP healthcare would fast become 10%

  2. Hello to all you “Golden Dome Dwellers”…it is against Federal law to force people to purchase a product against their will. For those who can no longer afford the skyrocketing cost of “affordable” (Hah) healthcare insurance there are alternatives but it seems the Vermont Legislators re hell bent on forcing more people into poverty with a ridiculous and illegal “Mandate Tax”. When will these idiots realize that creating poverty is not the way to treat the people who voted them into office. They work for the people, NOT the other way around. Uphold your oath of office and protect the people instead of driving them away. #802VTALLIANCE

    • I don’t think you understood my column. The legislature is very likely NOT going to impose a penalty tax for not buying insurance.

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