But those efforts have been hampered by a one-year delay in applying new insurance regulations to large employers. Those employers had been expected to provide insurance coverage information that the IRS would use to help identify who has insurance and who does not.
While failures in launching the federal insurance Web site and online exchanges have thrust the Department of Health and Human Services to the center of public attention, the IRS also has a huge role in carrying out the law, including helping to distribute trillions of dollars in insurance subsidies and penalizing people who do not comply.
The fine is intended to encourage healthy people to enroll even if they do not have an immediate need for care. If the elderly and the sick dominate the ranks of those who sign up, it could lead to what health economists call an “ insurance death spiral” of rapidly escalating costs, premium hikes and declining enrollment.
Besides lacking coverage information that would help the agency enforce the “individual mandate,” the IRS also is hamstrung in penalizing those who do not sign up. The lawmakers who drafted the health-care law intentionally barred the IRS from using its customary tools for collecting penalties — liens, foreclosures and criminal prosecution. The only means of collecting the fine is to essentially garnish tax refunds for people who overpaid their taxes.
Enforcing compliance with the law is just part of what one Treasury Department official calls “the largest expansion of IRS responsibilities in recent history.” And the increased workload comes as the IRS is suffering from high turnover of senior managers, years of budget cuts and congressional inquiries into the alleged politicization of the agency.
“This is really quite a heavy lift,” former IRS commissioner Mark W. Everson, who served under President George W. Bush, said in recent testimony on Capitol Hill, adding that he was concerned about the agency’s ability to fulfill the wide-ranging demands of the Affordable Care Act.
IRS officials say that they are on track to meet the law’s requirements and that their computer systems are performing as hoped. They acknowledge that some systems involving other departments — such as those distributing subsidy checks to insurers — are not completely built. But the officials note that most of the new responsibilities for the agency do not begin in earnest until the 2014 tax season.
Some of the tasks are so vital to the success of President Obama’s health-care initiative that any uncertainty about whether the IRS can do its job raises doubts about the overall endeavor. Health-policy researchers say they know relatively little about what level of enforcement is necessary to nudge citizens into buying coverage or whether the health law’s low fees — $95 in 2014 or 1 percent of income, whichever is greater — will succeed in doing so.
“We should be absolutely clear we don’t know how this will work,” said MIT economist Jon Gruber, referring to the size of the penalty. Gruber helped design the mandate used in the insurance plan Massachusetts launched six years ago.
Some of the experts are alarmed about the impact of weak IRS enforcement on an insurance program increasingly viewed with suspicion and doubt. If healthy citizens think there is little likelihood of credible enforcement of a dubious new law, many may decide to flout the insurance requirement, which could lead to a dangerous concentration of elderly and sick people in the insurance pools.
“I now think there is little hope we are going to get enough younger healthy people to sign up, and that means that this law is in grave danger of financial collapse,” Robert Laszewski, president of Health Policy and Strategy Associates, a health-care industry consultant in Alexandria, said in an interview about IRS enforcement.
Other health insurance experts are more sanguine, saying public education may initially be more important than enforcement in getting healthy people to enroll.
“At the end of the day, people will sign up,” said Lawrence Jacobs, a University of Minnesota political scientist who has studied the implementation of Medicare and other health systems. “We know from experience that a large number of people sign up for insurance simply because they are law-abiding citizens who don’t want to be in violation of the rules.”
Jacobs cited “the lesson of Massachusetts,” where the state’s pioneering health insurance program initially attracted people who were relatively unhealthy and in more urgent need of coverage. As the state publicized possible penalties, enrollment in the state program skyrocketed and stabilized the demographics of the insurance pool.
“This carrot-and-stick approach was effective,” Jacobs said. “How far you go in assuring universal compliance is a sensitive political balancing act.”
A question now is whether the IRS was given enough enforcement muscle.
Senate Democrats decided in 2009 to limit the penalties for flouting the individual mandate. They whittled away the minimum first-year penalty, which fell from $750 in an early draft proposal to $95 in the final law.
Lawmakers also curtailed the vigor of enforcement after rumors surfaced that the IRS would hire thousands of new, potentially armed agents to enforce the health-law provision.
“There were all these reports of jackbooted thugs hauling people away to jail,” said John McDonough, who served as a health policy adviser to Sen. Edward M. Kennedy (D-Mass.). “There was a sensitivity towards that kind of stuff and a desire to make the mandate as palatable as possible with the belief that, if it had flaws down the road, Congress would be able to address it.”
Jacobs said that decision was a sound political judgment at the time, given the possibility of “a conservative uprising” that could have defeated the legislation.
IRS officials say they are confident they can administer and enforce the health law as required, even with the limited penalties and shortage of coverage information from large employers.
In a statement provided to The Washington Post last week, acting IRS commissioner Danny Werfel said the agency is on schedule and on task — and has not experienced technical problems of the sort associated with the rollout of the HealthCare.gov Web site.
“We’re very pleased with the performance of our IT systems, which have been effectively and efficiently providing data to the Marketplaces since the beginning of October,” he said, noting that as of Nov. 9, the IRS has received and responded to more than 2.3 million requests for historical household income and family-size tax data. That information is necessary to determine applicants’ eligibility for income-based financial assistance.
An IRS official who was not authorized to speak publicly on the matter said that while the law bars the agency from using liens or levies to collect any payment related to the health-care program, other “regular enforcement tools” can be used, such as issuing statements to taxpayers, tracking the liability, deducting it from refund payments — and setting up installment agreements to pay over time. Also, he said, “it is important to note that the vast majority of taxpayers file and pay what they owe in a timely manner.”
Yet, while the IRS is in charge of enforcing the individual mandate, Health and Human Services will handle applications for people who want to be exempted. Millions are likely to apply for those exemptions, including the 5.2 million low-income people who live in states that did not expand Medicaid.
“The IRS is in an unenviable position because the data is coming from HHS, and I wouldn’t be very confident they’ll do much better here than on their other tasks,” said Brian Haile, a health policy analyst with the tax firm Jackson Hewitt.
Haile said that HHS has not finalized the exemption application and that he is worried the agency, which has had difficulty transmitting data to insurers, will be able to provide accurate information in this situation.
Juliet Eilperin contributed to this report.