Under Leader Reid’s amendment, in the year 2019 about 16 million U.S. citizens would be uninsured and be forced to pay a penalty tax of almost $800 per year. About eight million illegal aliens would be uninsured and would owe no penalty tax. Both groups would get their health care through a combination of out-of-pocket spending and use of uncompensated care in emergency rooms and free health clinics.

This seems unfair.

Details follow for those who care. Warning: the details get weedy quickly. You might want to skip them. I am including them mostly for experts and reporters who may want to follow up on this. If you are a policy amateur but have been reading this blog for more than a week or two, feel free to dive in. You can handle the complexity.

If you want to know my guess about why the Reid amendment has this problem, please skip to the last section of this post.

Background

Both the House and Senate bills require applicable individuals to buy health insurance. If you are an applicable individual and you do not have insurance, you pay a penalty tax to the IRS. The taxes are different:

  • House bill: roughly 2.5% of adjusted gross income;
  • Senate bill: $750 per person in 2016, with smaller phase-in amounts in 2014 and 2015.

Each bill defines exceptions to the term applicable individual. I will focus on the exceptions related to citizenship and presence in the United States.

Thanks to help from some smart friends, here is how I read the language:

Do the individual mandate and penalty tax apply?

Uninsured U.S. citizen

Uninsured and not a citizen

Living in the U.S.

Living outside the U.S.

Legally in the U.S.

Illegally in the U.S.

Resident in the U.S.

Not resident in the U.S.

Resident in the U.S.

Not resident in the U.S.

House-passed

Yes

No

Yes

No

Yes

No

Reid amendment

Yes

Yes

Yes

??

No

??

This table is more complex than I would like, in part because of the different approaches in the two bills.

The key is the comparison of the two red cells. Under the Reid amendment, beginning in 2011:

  • If you are a U.S. citizen living in the U.S. and you are uninsured, you pay the penalty tax.
  • If you are illegally in the U.S. and you are uninsured, you do not pay the penalty tax.

In 2016 the Reid amendment’s penalty tax (with some exceptions) is $750 per person. It phases up from $95 in 2014 and $350 in 2015. By 2019, the penalty tax would be $794 per person (using CBO’s inflation assumptions.)

CBO says that, in 2019 under the Reid amendment there would be about 24 million uninsured people, “about one-third of whom would be unauthorized immigrants” (p. 8). So there would be about 16 M people in the Yes boxes, and about 8 M in the No box.

Legislative language

The key language is in section 5000(A)(d)(3), as would be added by section 1501(b) of the Reid amendment: “…