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for employers who presumably have to track

full year. In fact, nearly 45 percent will regain

insurance within four months.23 Therefore,

how much to withhold on the basis of a work-

er's marital status and number of children. (To

many people who lack health insurance at

be fair the penalty would have to vary with

some point in the year will be insured at the

family size.) If the penalty was a flat rate rather

time they file their taxes. Presumably, the

than based on income as are other taxes, that

"proof of insurance" could include the length

would raise other issues for employers such as

of time that the person was insured, but that

how to handle workers with more than one

would raise the complexity of compliance pro-

job. Should they pay twice?

cedures considerably. It would also increase

Moreover, withholding would do nothing

the incentive to lie.

to collect from the unemployed. Yet we know

If the government were able to determine

that one reason many people lack health

that someone had not purchased health insur-

insurance for part of a year is that they are

ance, what penalty would apply? Ideas have

unemployed. Thus, withholding would penal-

been suggested ranging from loss of drivers'

ize millions of workers with insurance but

licenses to direct fines. However, some sort of

miss millions without.

tax penalty is the most common approach.

Therefore Steuerle and others suggest

But that is much easier said than done. As

some form of carrot-and-stick approach,

Gene Steuerle of the Urban Institute has

whereby the penalty would be offset, at least

noted, the administrative and enforcement

in part, by some form of advance subsidy.26

costs of collecting the penalty would be enor-

mous. The IRS relies largely on voluntary

However, as discussed below, that has its own

compliance backed up by a slow and cumber-

set of difficulties.

some legal process to collect taxes. And it does

Finally, some people suggest that rather

not require those with very small amounts of

than impose penalties on individuals who

income to file. Even so, as noted above, mil-

fail to insure themselves, the government

lions of Americans cheat or fail to file. Collect-

simply insure them by assigning them at ran-

ing a penalty for failure to insure would be

dom to either an insurer or a regional insur-

much more difficult. "The [IRS] is simply

ance pool (see below). The insurer would

incapable of going to millions of households,

then be responsible for ensuring payment

many of modest means, and collecting signifi-

through normal collection methods. But, as

cant penalties at the end of the year," Steuerle

we've seen, a large number of the uninsured

warns.24

lack insurance for only a short period of time.

If the government

In many cases they would become insured

Moreover, many of those who fail to com-

were able to

again during the time it would take to identi-

ply with the mandate will be low-income

determine that

fy, assign, and process them.

Americans. Nearly one-quarter of those with-

States are likely to have an even harder time

out health insurance today have household

someone had not

incomes of less than $25,000 per year.25

enforcing a mandate, since they lack both a

purchased health

tracking infrastructure and the ability to

Those individuals will almost certainly lack

impose large tax penalties. Of course, theoret-

the resources to pay any penalty, particularly

insurance, what

ically states could use their income tax systems

a lump-sum penalty assessed at year's end.

penalty would

to levy penalties, but given lower state tax

As an alternative, therefore, some observers

apply? Ideas have

rates, the penalty would be huge compared to

have suggested that the penalty be withheld in

the amount of taxes otherwise due. That

advance, as part of income tax withholding,

been suggested

would make the penalty a difficult proposi-

then refunded to individuals who provide

ranging from

tion politically.

proof of insurance. However, there is an inher-

loss of drivers'

Governor Romney has suggested that

ent unfairness to an approach that would

Massachusetts withhold state income tax

impose lower take home pay on Americans

licenses to direct

refunds for those without insurance. He

regardless of whether they have health insur-

fines.

would redirect the refund into an escrow

ance. It would also increase compliance costs

4