The Patient Protection and Affordable Care Act of 2010 added two provisions to the individual income tax: a tax credit for those with low income levels who are purchasing health insurance, and a penalty for those who have not purchased health insurance. How many tax returns are actually including these provisions? The mid-year report of the Office of the Taxpayer Advocate, released in July, offers some information in Chapter II, \”Review of the 2016 Filing Season,\” as well
The report also evaluates how well the IRS has implemented these provisions, with the overall tone reflected in Chapter III, Area of Focus #9, \”As the IRS Has Gained Experience in Administering theIndividual Provisions of the Affordable Care Act, It HasAddressed Some Previous Concerns But a Few Still Remain.\”
As CBO points out, by far the biggest tax provision affecting health insurance coverage is the tax exclusion for employer-provided health insurance–that is, when your employer pays for your health insurance, the value of those payments is not taxed as income. If those payments were taxed as income, CBO estimates that it would raise $266 billion in tax revenue in 2016. In contrast, the Premium Tax Credit providing a subsidy for low-income people to purchase health insurance looks relatively small.
Also the biggest additional cost of the Patient Protection and Affordable Care Act of 2010 is not the Premium Tax Credit, but rather is the expansion of Medicaid coverage to more people, which CBO estimates raised the costs of Medicaid by $64 billion in 2016. Overall, the CBO reported that for the Patient Protection and Affordable Care Act of 2010: \”In 2016, those provisions are estimated to reduce the number of uninsured people by 22 million and to result in a net cost to the federal government of $110 billion.\” As I noted in that earlier post: \”If the fundamental goal of the act was to spend an extra $110 billion and subsidize insurance for 22 million more Americans, the law could have been a lot simpler and less invasive.\”