Individual Responsibility. It sounds so practical. Who wouldn't be in favor of that? And the Patriot Act is just so ... patriotic. As you likely know, this is the code word for individual mandates in the various versions of the healthcare/insurance reform/giveaway bills winding their way through that abyss we call our legislative process.

But first, a flashback. The date is Feb. 26, 2008. Cleveland Ohio, democratic debate between Barak Obama and Hillary Clinton. Among heady issues such as a picture of Obama in native Somali garb and quips about pillows that dominated subsequent news coverage, the candidates spent 16 minutes discussing health care reform. Let's remember what then-candidate Obama said on this topic when he was still chasing our votes (excerpted) .

... the main difference between Senator Clinton's plan and mine is the fact that she would force in some fashion individuals to purchase health care.

Now, Senator Clinton has not indicated how she would enforce this mandate. She hasn't indicated what level of subsidy she would provide to assure that it was, in fact, affordable. And so it is entirely legitimate for us to point out these differences.

And the last point I would make is, the insurance companies actually are happy to have a mandate. The insurance companies don't mind making sure that everybody has to purchase their product. That's not something they're objecting to. The question is, are we going to make sure that it is affordable for everybody? And that's my goal when I'm president of the United States.

On the -- on the point of many adults, we don't want to put in a situation in which, on the front end, we are mandating them, we are forcing them to purchase insurance, and if the subsidies are inadequate, the burden is on them, and they will be penalized. And that is what Senator Clinton's plan does.

Hmmm, mandates sound horrible don't they - and that evil Hillary wants to force them on you.

What a difference an election makes. Helpfully, the insurance industry heard Obama's critique and stepped up to the plate with a hum-dinger of an answer on how to enforce the mandates they love so much. And how do they plan to collect? Why, through your income taxes of course. Because as you have likely heard: the only two sure things in life are death and taxes, and there is nothing corporate America  loves better than a sure thing when it comes to putting people's money in their own pockets.

The House (HR3200) and the Senate (HELP bill) use pretty much the same basic mechanism. There are some differences in implementation though. The major difference being that HR3200 uses a percentage of income, and HELP uses a set penalty. Both accomplish the reporting, collection and enforcement by amending the Internal Revenue Code of 1986. The relevant related information is often spread out in several different subparagraphs/sections, so quotes may represent portions of different sections/paragraphs/subparagraphs (I tried to avoid confusion, but a disclaimer seems appropriate).

HR 3200 includes modifications to the tax code that call for a tax of 2.5% of gross earnings (including some income exempt from income tax)

SEC. 59B. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE COVERAGE.
(a) Tax Imposed- In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent of the excess of--
            (1) the taxpayer's modified adjusted gross income for the taxable year, over
            (2) the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer.
[..]

(5) MODIFIED ADJUSTED GROSS INCOME- For purposes of this section, the term `modified adjusted gross income' means adjusted gross income--

(A) determined without regard to section 911, and

(B) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

This maximum tax penalty will be limited to 100% of the average annual cost of an insurance policy.

(A) IN GENERAL- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the applicable national average premium for such taxable year.

(B) APPLICABLE NATIONAL AVERAGE PREMIUM-

    (i) IN GENERAL- For purposes of subparagraph (A), the `applicable national average premium' means, with respect to any taxable year, the average premium (as determined by the Secretary, in coordination with the Health Choices Commissioner) for self-only coverage under a basic plan which is offered in a Health Insurance Exchange for the calendar year in which such taxable year begins.

So unless my rudimentary math skills escape me, for a worker making $35,000 a year the tax for not carrying insurance will be $875. When stacked against a $4824* annual premium, this seems a bargain. For a worker making $75,000 it would be $1875. You get the idea. For those failing to provide insurance for "more than one individual" the maximum penalty is tied the "average family policy" ($13,375*).

Over in the senate, the HELP bill (big .PDF) is a bit harder to pin down. This bill hands much of the power to the Secretary. (Note: the relevant section starts on pg. 160)

(A) IN GENERAL.--In the case of any individual who did not have in effect qualifying coverage (as defined in section 3116 of the Public Health Service Act) for any month during the taxable year, there is hereby imposed for the taxable year, in addition to any other amount imposed by this subtitle, an amount equal to the amount established under paragraph (2).

(C) LIMITATION.--The maximum amount imposed under this paragraph with respect to any taxpayer shall not exceed 4 times the amount determined under paragraph (2)(D).

Now we move on to paragraph (2) where we get into the meat of what penalties are expected to be levied.

(A) REQUIREMENT TO ESTABLISH.--Not later than June 30 of each calendar year, the Secretary, in consultation with the Secretary of Health and Human Services and with the States, shall establish an amount for purposes of paragraph (1).

(C) REQUIRED CONSIDERATION.--Subject  to the limitation described in subparagraph (D), in establishing the amount under subparagraph (A), the Secretary shall seek to establish the minimum practicable amount that can accomplish the goal of enhancing participation in qualifying coverage (as so defined).

(D) LIMITATION
   (i) IN GENERAL.--Subject to an adjustment under clause (ii), the amount established under this subparagraph is $750.

This is where they get a bit (intentionally?) confusing. In paragraph (1) they authorize up to 4 times the rate defined in paragraph (2)(D). They also indicate it is a penalty in addition to others defined in this section.  Then in paragraph (2) the Secretary is empowered to set a rate for the purposes of paragraph (1). When looking at subparagraph (2)(C) the penalty is limited by subparagraph (2)(D). If you only read paragraph (2), it would seem that the limitation is $750; but paragraph (1) authorizes up to 4 times that amount.

The way I am interpreting this is they have set a hard limit for a maximum penalty at $3000 (4 x $750). The only thing I can figure is they wanted to make the number $3000 look like $750 to a casual reader who did not go in depth into the bill.

Based on the language of the bill, it seems that there isn't an adjustment in the penalty based on income. In other words, it appears that someone making $35,000 will end up paying the same penalty as someone making $75,000 per year for noncompliance: $3000. When stacked against a $4,824* premium this still seems a minor bargain.

The HELP bill does provides some escape clauses not available in HR3200.

(c) EXEMPTIONS.--Subsection (b) shall not apply to any individual--
(1) with respect to any month if such month occurs during any period in which such individual did not have qualifying coverage (as so defined) for a period of less than 90 days,
(2) who is a resident of a State that is not a participating State or an establishing State (as such terms are defined in section 3104 of the Public Health Service Act),
(3) who is an Indian as defined in section 4 of the Indian Health Care Improvement Act,
(4) for whom affordable health care coverage is not available (as such terms are defined by the Secretary of Health and Human Services under sec tion 3103 of the Public Health Service Act), or
(5) described in section 3116(a)(4)(C) of the Public Health Service Act.

Note: HR3200 also provides a loophole "in cases of de minimis lapses of acceptable coverage" which I am construing to be similar to paragraph (1) above and the ability to apply for a "hardship waiver".

The bills create a new filing requirement for all insurance providers. Carriers must provide the insured what can only be described as a "proof of insurance" certificate essentially mirroring the requirements of a W2. It must be provided to the insured by Jan 31.

When it comes to filing requirements and failure to file, HR3200 simply knocks a couple of "ands" "ors" and various punctuation marks out of the relevant tax code and appends language integrating the health coverage penalty tax to the sections that address the same issues for income taxes. So, basically the IRS is given power to come after anyone who does not comply with the requirements of this section of the bill. I assume this activates the full range of traditional attacks employed against tax evaders including garnishing wages and property seizure. The HELP version seems to accomplish  the same thing in a more elegant fashion (see below).

In an interesting sleight of hand, the language in both the house and the Senate say that this tax will not count as a tax ... for any purposes that might result in it being termed as a tax increase. At the same time, the language expressly counts the provisions as a lawful tax for any purposes related to determining total tax owed, collection and legal sanction. (HELP quoted here).

(1) NOT TREATED AS TAX FOR CERTAIN PURPOSES.--The amount imposed by this section shall not be treated as a tax imposed by this chapter for purposes of determining--
(A) the amount of any credit allowable under this chapter, or
(B) the amount of the minimum tax imposed by section 55.

(2) TREATMENT UNDER SUBTITLE F.--For purposes of subtitle F, the amount imposed by this section shall be treated as if it were a tax imposed by section 1.

(3) SECTION 15 NOT TO APPLY.--Section 15 shall not apply to the amount imposed by this section. [note: HR3200 states this as, "The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986."]

HR3200 seems to leave it an open question what the collected tax would be used for. The HELP committee bill specifically designates any funds collected will be dispersed to the insurance carriers to pay for other people's subsidized insurance coverage.

(e) USES.--Amounts collected under this section shall be dedicated to premium credits established under section 3111 of the Public Health Service Act.

So, there you have it. A general overview of mandate mechanics based on my non-expert analysis of the bills. As you have likely inferred from the tenor of this post, I'm not too impressed. What do you think?

*USA today reports that the average cost of EMPLOYER based individual coverage is $4824, and family coverage is $13,375. Privately negotiated insurance plans are reported to be considerably higher, but my best efforts have not been able to locate a specific average for this demographic.