Can the IRS Save Obamacare?

Obamacare’s fourth open enrollment period will begin November 1. For the Internal Revenue Service, it will be open season on uninsured taxpayers.

In an effort to maximize enrollment, the IRS is mining the personal tax information of people who have chosen not to buy Obamacare policies. An estimated 8 million of them paid a tax for the privilege of remaining uninsured. Millions more claimed a hardship that exempted them from the tax.

The Centers for Medicare and Medicaid Services has announced a program of outreach that will target these wayward souls. The CMS announcement proclaims that Obamacare policies are “a product consumers want and need.” The agency can’t understand why millions of people — many of them young and healthy — still don’t realize that they want and need it.

What we’ve got here is a failure to communicate. So the government will communicate directly with these individuals in the run-up to open enrollment.

The administration has not said what form this communication will take. It most likely will involve what my Galen Institute colleague Grace-Marie Turner has called the “knee-knocking experience” of receiving a letter from the IRS: “Dear Taxpayer: Perhaps you’d like to reconsider your decision not to buy an Obamacare policy.”

Or the IRS may provide the information to CMS and let that agency conduct the “outreach.” Either way, it would involve a potentially unlawful use of tax information, a matter that House majority leader Kevin McCarthy (R., Calif.), majority whip Steve Scalise (R., La.), and Ways and Means Committee chairman Kevin Brady (R., Texas) have raised in a letter to the IRS commissioner.

The Internal Revenue Code, the letter notes, strictly limits how the IRS can use your tax information. That includes information about whether you’ve paid a tax penalty.

The law, in effect, establishes a pact between taxpayers and the government: You agree to disclose personal financial information and the government agrees to use that information only to determine whether you’ve paid all the taxes you owe. In the jargon of the law, the government may use data from your returns only for “tax administration.” It generally cannot use that information for any other purpose or share it with any other government agency.

The government cannot lawfully use information you provide on your tax returns to advance its social and political agenda, such as increasing Obamacare enrollment.

The law does create certain limited exceptions, one of which pertains to Obamacare. It permits the IRS to provide tax information to CMS and the exchanges, but only to determine whether an individual is eligible for subsidies under Obamacare or certain other federal welfare programs (more on that below). That exception is very narrowly drawn. It does not authorize the IRS to use or share information with CMS about whether an individual has paid a tax penalty. Indeed, it expressly prohibits CMS from using tax information for any purpose except to determine whether a particular individual is eligible for subsidized health coverage.

The government, in short, cannot lawfully use the information you provide on your tax returns to advance its social and political agenda, such as increasing Obamacare enrollment.

It is required, however, to determine whether those who claimed Obamacare subsidies were entitled to those subsidies. On that, the IRS has been less diligent. In contrast to its Mr. Hyde approach to taxpayers who have declined Obamacare coverage, the agency is all Dr. Jekyll when it comes to people who are potentially cheating taxpayers by helping themselves to subsidies to which they’re not entitled.

Brian Blase of the Mercatus Center estimates that 3 million households that received subsidies last year failed to report their income to the IRS, as required by law. Since Obamacare subsidies are based on income, their failure to file tax returns, including an additional form disclosing how much they received in subsidies, makes it impossible for the government to determine whether they received too much or too little assistance, or whether they were eligible for any assistance at all.

This is not a theoretical problem. Subsidy recipients who followed the law by filing tax returns reported receiving $15.8 billion in 2015. Blase estimates that the government paid out $26.7 billion, a discrepancy of nearly $11 billion.

You might think the IRS would be hounding those who took subsidies but neglected to file returns, in an effort to learn what happened to that $11 billion. The agency instead appears far more occupied with stalking people who paid their taxes, including the Obamacare tax on the uninsured.

The administration’s zeal in pursuing taxpayers and laxity in accounting for subsidies serve a common goal: To save Obamacare by herding as many people as possible into the exchanges by any means necessary. They hope to increase enrollment — in the face of Obamacare’s rising premiums, shrinking provider networks, skyrocketing deductibles, and insurer exodus from the exchanges — by deploying the IRS to pressure those who so far have shunned the product.

Such is the arc of progressive social policy. It exploits compassion for a sympathetic group (in this case, the uninsured) in order to enlarge government power. Once government acquires that power, compassion mutates into coercion: Government knows what’s best for you. It strong-arms you only to show how much it cares.

So if you are among the millions who find themselves on the IRS’s Obamacare target list, consider yourself fortunate. Your government is only helping you understand why you really do want and need Obamacare.

— Doug Badger is a former White House and U.S. Senate policy adviser and currently a senior fellow at the Galen Institute.