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Under Current Bill, Americans Must Pay Penalty of
Up To $1,500 If They Fail To Buy Coverage; Republicans Have Sought To Mischaracterize This Penalty As A 'Tax'

Schumer Would Clarify It Isn't A Tax By Stopping The Government From Keeping The PenaltiesInstead, It Would Be Applied Towards Individuals' Future Purchase of Health Care

Schumer Plans To Push This Proposal As Amendment To Emerging Health Care Overhaul On Senate Floor

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WASHINGTON, DC-U.S. Senator Charles E. Schumer (DNY) announced Thursday that he plans to offer a floor amendment converting the Senate health care bill's penalties on Americans who fail to buy health insurance into a credit that those individuals could put towards future premium payments. If adopted, the proposal would mean the government would pay back most of the fines it collected, defanging Senate Republicans' misleading portrayal of these proposed penalties as a tax.


Under Schumer's proposal, the penalties paid by individuals who fail to purchase insurance would be set aside in a new federal trust fund. The money would remain available for the individual to use in the future for the purchase of insurance in the "exchanges" established in the health reform bill.


"This proposal makes clear to Americans that any money they pay in penalties is not lost forever. It is not a tax, but can actually can be used to buy insurance in a future year," Schumer said. "This turns the penalty into a down payment on future coverage, and will help make health care reform more affordable for middleclass families."


Americans could keep up to three years' worth of penalties to put towards premium payments; after three years, part of the payments would begin to be forfeited. This means that the maximum credit available would be $4,500 for a twoadult household. When the individual or household finally did buy insurance, the credit would be applied in the form of a reduced premium. The credit would not impact the individual's eligibility for federal subsidies in any way.


In essence, Schumer's measure transforms the penalty payments into a down payment on future insurance coverage.  Sending these payments to a dedicated federal health coverage trust fund makes it clear that the government will keep its promise to let individuals use these penalties as future credits to purchase health insurance.  By allowing the penalty credit to expire after a number of years, Schumer's proposal gives individuals an incentive to participate in the new health care exchanges to purchase insurance.


The proposal is Schumer's latest effort to ease the potential affordability challenges that could confront middleclass Americans subject to the bill's mandate to buy insurance. Last week, Schumer joined Sen. Olympia Snowe (RME) in passing an amendment that exempted Americans from this requirement if the cost of the available plans exceed 8 percent of their income. The previous threshold for this waiver had been 10 percent. The SchumerSnowe amendment also reduced the size of the maximum penalty for households, from $1,900 to $1,500.