OP-ED

Why Bother With Government?

On Friday, a federal Court of Appeals held unconstitutional a central feature of the new healthcare law-its requirement that almost all Americans obtain healthcare insurance through private insurance markets. This ruling came only days after the debt-ceiling debacle — a “tempest in a tea party” — during which our country’s credibility for honoring its debts was held hostage to the conviction that tax revenues should regularly ratchet down, but never up. Both the subtext of the majority’s opinion in the healthcare case and the anti-tax fervor evident in the debt-ceiling debate share a common underlying philosophy: the belief that government activity is largely hostile to prosperity and the pursuit of happiness, and therefore the less of it, the better. But this view of government is incorrect.

Government, to paraphrase Congressman Barney Frank, is just the name we give for the things we the people decide to do together. And taxes in turn are just the amounts we chip into the collective pot to buy whatever package of goods and services that we have agreed to purchase collectively.

In ordinary commercial settings, the private sector is more efficient at allocating scarce resources than is the government, which is why the United States relies so heavily on private markets. So why should we bother to do things together through the mechanism of government? One answer is that only government can address an “incomplete” market, which occurs when the private sector cannot or does not provide a market solution to an economic problem. Healthcare insurance is a classic case of an incomplete market that results in real economic burdens.

You cannot today buy the sort of private healthcare insurance that one would expect to find if private markets always provided a complete suite of rational solutions. That product would be “permanent” healthcare insurance, analogous to permanent life insurance, in which an individual could contract today for a non-cancellable policy that would provide specified medical care benefits for the individual’s life, in return for annual insurance premiums.
Such a market does not exist because of adverse selection (the phenomenon that those individuals who knock on an insurance company’s door are more likely to be sick than those who never give healthcare insurance a moment’s thought), because the annual premium for permanent healthcare insurance would be very high for a young person, relative to the cost of a one-year policy, because healthcare technology and costs rise at unpredictable rates (while life insurance pays off a fixed amount), and because everyone knows that in the end government (that is to say, all of us, together) will provide at least some minimum level of care for the uninsured. As the majority admitted in Friday’s Court of Appeals decision, this last point explains why voluntary federal flood insurance has been a failure — homeowners have no reason to buy insurance when they know they will always be bailed out through government “disaster relief.”

It is precisely because private healthcare insurance markets are unavoidably incomplete that every developed country other than the United States has some form of mandatory health insurance plan. The reasoning is simple: if you can get everyone into the insurance pool — the young and healthy as well as the old and sick – then healthcare costs can be broadly shared, and thereby made affordable. The young and healthy “overpay” today, in return for receiving guaranteed coverage for their future selves, when they in turn will be old and sick.
By requiring universal participation in healthcare insurance, government thus can create the very product that the private sector cannot (because of adverse selection, etc.) — permanent health insurance, in which your premium reflects not just the cost of covering you today, but for your entire lifetime. Why should it be unconstitutional for all of us to solve this problem in this way? The appellate court majority’s answer hinges less on constitutional bedrock doctrines than it does on alleged terminological foot-faults by Congress.

One of Congress’s principal errors, according to the majority opinion, was to impose a “mandate” that each of us purchase private insurance, or face a “penalty” for failing to do so. Had Congress imposed a “tax” rather than a “penalty,” the result apparently would have within its power — even though under the design of the legislation the “penalty” in question in fact will be collected through the personal income tax system, just like the rest of an individual’s income tax obligations.

In other words, the majority would agree that government (that is, all of us acting together) can collect taxes from all Americans in amounts equal to the required insurance premiums to fund affordable healthcare, and then use those tax revenues to subsidize medical care provided by private healthcare professionals. In fact, we do just that for a subgroup of Americans today — we call it Medicare!

And if in turn Congress were to grant to an individual who provided proof that she had obtained qualifying private insurance a tax credit in an amount equal to her tentative healthcare tax liability (so that net she would owe no tax), surely that liberty-enhancing grant of additional personal flexibility to buy any private insurance policy that she preferred would raise no constitutional issue at all. Yet this hypothetical tax-and-credit system is the economic equivalent of the “mandate” that the court struck down as unconstitutional, because under either formulation individuals can either procure qualifying private health insurance or incur a tax liability.

In contrast to the Medicare model, the new law eliminates the mandatory channeling of money into government in the form of taxes (except for those who do not choose a private plan on their own) and the disbursement of those taxes back out to the people in the form of healthcare subsidies. Yet in the view of the majority opinion, this reduction in government’s involvement, when compared to Medicare, somehow made the legislation into a “wholly novel and potentially unbounded assertion of congressional authority: the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them re-purchase that insurance product every month for their entire lives.”

In the end there are two great ironies at work here. First, if Congress had followed the tax-and-subsidy Medicare model for financing universal healthcare, the new healthcare legislation plainly would be constitutional. The majority opinion in Friday’s Court of Appeals case effectively argues that Congress, by trying to reduce the role of government when compared with that model (and, it must be admitted, being too cute in using the word “penalty” to describe what plainly operates in fact as a tax on individuals who do not buy their own insurance), somehow converted a constitutional law into an unconstitutional assertion of a novel authority. We now must hope that the Supreme Court will see past the formalism of this analysis and conclude that the legislation in substance is completely constitutional.

The other irony at work is that the principal driver of our worsening federal deficit is healthcare. According to the OECD, the United States in 2009 spent 55 percent more per capita on healthcare than did the next most profligate developed country (Switzerland). Of that total, government programs provided larger subsidies per capita than did those in any other developed country except Norway. Yet our system does not thereby obtain any better health outcomes: U.S. life expectancies at birth are far below those of Australia, or France, or the U.K., or even poor beleaguered Greece.

The healthcare legislation was our first serious effort to grapple with the problem that our current healthcare system (including the healthcare insurance market) will bankrupt us if left to continue on the same path, while delivering poor value along the way. The legislation might not be perfect, but the nonpartisan Congressional Budget Office concluded that it would reduce the deficit over the next ten years and have an increasingly positive impact in years thereafter.

By striking what they naively think to be a blow for personal liberty and small government, those who seek to undo the legislation in reality are proposing to dig the government’s deficit hole that much deeper. If the Supreme Court does not reverse this most recent decision, the end result will be that one day in the near future we all be required to pay higher taxes to climb out of this latest deficit hole of our own making.

Edward D. Kleinbard is a Professor of Law at University of Southern California Gould School of Law, and former Chief of Staff of the U.S. Congress’s Joint Committee on Taxation.

This post first appeared at The Huffington Post.

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Margarite MuehlmantimJonathan Hnate ogdenjvire Recent comment authors
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Margarite Muehlman
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A very helpfull post – A big thank you I wish you dont mind me blogging about this article on my blog I will also leave a linkback ThanksSo before we assess if you need internet marketing software you should develop and understand your website marketing plan so you can get a definite idea of what kind of internet marketing services software would really be of benefit for your requirements. It is advisable to first build a website marketing strategy then choose the right niche or market, preferably the one which you are interested in and target this group. As… Read more »

tim
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tim

“I believe that government is (or should be) just another name for all of us doing things together. But there needs to be a limitation to what all of us together can dictate to any one of us individually.” Margalit, welcome to the oldest party, the Tea Party. But you swallowed a big assumption there. If you describe a thing by leaving out the one feature of the thing that makes it different from all other things, you are either a simpleton or a con man. Mr. Frank may be both. “…just a name for all of doing things together…”.… Read more »

Margalit Gur-Arie
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Thank you for the welcome, Tim, but I don’t think that today’s Tea Party stands for a balanced view of central government, as much as it stands for getting Obama out of office at whatever cost, including imploding the entire country. Leaving that aside, I also don’t think liberals have a visceral hatred for the Constitution. I most certainly do not. I also find it interesting that the folks that argued for increased Federal power in the 18th century were not what you would call “liberal” today. It was the “left” of those days that insisted on limited government. But… Read more »

nate ogden
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nate ogden

” I don’t think that today’s Tea Party stands for a balanced view of central government, as much as it stands for getting Obama out of office at whatever cost, including imploding the entire country.” Then why would they run primary challenges to Republicans and why would they put fringe candiates like Angle and O’Donnel up when RINOs could have won without doubt. This is a clear example of your opinion supporting your bias. Any RINO could have wont the 2010 elections but they were willing to lose the seat rather then sit another RINO. Tea Party has clearly acted… Read more »

Peter
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Peter

“what part of one nation under God aren’t you getting?”

That’s the “Pledge of Allegiance” Nate, not the Constitution. That phrase was added in 1954, you can look at the history of why. Challenges to political meetings that start with a Christian prayer (said by a political office holder), or any other religion, are being challenged under the Constitution, so we’ll see how it works out.

Paolo
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Paolo

“As long as I keep my wallet zipped in my pocket, there is nothing the government can do.” Not true. Every year you pay income taxes, and if you don’t purchase a mortgage, or an HSA, or a solar panel you’ll have more money taken from your wallet than if you did buy any of those products. Exactly the same thing that will happen after 2014 if you choose not to purchase health insurance. Furthermore, the insurance mandate is weaker than existing income-tax based incentives. There are quite a few ways to be exempt from the mandate, including not making… Read more »

Margalit Gur-Arie
Guest

Paolo, First, my apologies for mistakenly addressing Peter in my previous response to your comment. It all boils down to whether this is a penalty or an incentive. It is a bit like the chicken and the egg, but it is important to define which came first. I do agree that if the bill granted a deduction, from current tax levels. to those who purchase insurance on the individual market (as you suggested above), the constitutionality issue would probably not have been raised, and it would have been comparable to deductions for mortgage, charity, education or energy efficient purchases. I… Read more »

Paolo
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Paolo

Margalit, are you saying that a tax break is unconstitutional whenever it is paid for via taxes at the same time that the tax break is enacted? Yet the same tax break is constitutional if it is paid for via deficit and then revenue is raised at some other time?

I don’t think any court will ever follow that doctrine, but even if it did, it would be a rather meaningless constitutional restriction. It’s pretty easy to get around it.

Margalit Gur-Arie
Guest

No, I am not suggesting that it would be unconstitutional. I don’t even know if the penalty as it stands will be found unconstitutional. I am suggesting that if the government wants to raise revenues, it should call it tax and if it wants to influence behavior by means of sticks and carrots, it should call it what it is, and let the dice roll. Which is what they did in this case, so going back now and tinkering with terminology to find ways around it seems a bit dishonest to me. The alternative of course is to tax and… Read more »

nate ogden
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nate ogden

I haven’t seen this get any mention in the press. This entire debate is all becuase they didn’t want to call it a tax. They tried playing politics and having it both ways and got burned. Now we have a constitutional crisis becuase of game playing.

Peter
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Peter

The constitution is just a vehicle that closes the argument by giving the final (in relative terms) ruling to a body that may or may not have enough wisdom and backbone to do the right thing. You could replace the constitution with the Bible and have as much interpretation for doing good or evil. I revert back to my example of Dred Scott which was based on the Constitution of the time. Amendments try to get it right depending on the political climate that created the amendment. The 18th Amendment established prohibition, the 21st repealed it. If the Supreme Court… Read more »

BobbyG
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“There can be no exceptions. If we start making exceptions, we become that which we fear most, and we trigger a see-saw of chipping away from the left and from the right until there’s nothing left.” ___ Agreed. But, what constitutes an “exception” is itself frequently the subject of loud and protracted wrangle. Have you heard of the accrued “administrative exceptions” case law departures from the 4th Amendment’s Probable Cause and Warrants requirements? Take the example of mass non-cause workplace (and school) drug testing. From my 1998 grad thesis: “…It is simply beyond dispute that our government is deeply involved… Read more »

nate ogden
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nate ogden

How do you feel about schools testing all kids and disaplining those who fail even if use was off campus and had nothing to do with school. I think BG or one of the GV schools was doing it.

BobbyG
Guest

SCOTUS has already ruled on school drug testing (see Vernonia v Acton). Scalia, who angrily railed against suspicionless drug testing in Skinner v Railway on “provacy” grounds, blew of the school thing on the grounds that “hey, they’re just KIDS, they don’t have full constitutional rights. Y’see, you have full constitutional rights from the “moment of conception” until birth, then they become lesser until you’re 18.* How do I feel about it? I’m against it. It’s mostly a symbolic “solution” in search of a problem, it’s “corporate welfare” (easy high volume money for the clinical labs). Voluminous detail in my… Read more »

BobbyG
Guest

Hey, a typo!

🙂

Paolo
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Paolo

Margalit – I don’t quite understand what constitutional freedom you are trying to defend. Government today already can force you to buy ethanol in your gasoline, which favors private corn farmers in Iowa. It forces you to finance wars that favor private corporations like Haliburton. It can use eminent domain to force people out of their property and give it to other private owners. It can take your Medicare taxes and give them to private Medicare Advantage providers. It can simply give money to any private sector it wants to favor/protect via defense, research, or infrastructure spending. And if you… Read more »

Margalit Gur-Arie
Guest

Peter, regarding use of tax revenues, yes, I agree, the only way for citizens to regulate that is by voting, and I wish people would get of their a**es and go vote because if they would have done that in 2010, we would have been able to avoid much of the damage done by a loud minority stuck at a developmental stage of the “terrible twos”. As to private purchases, the government today can force me to buy certain things and not others, if and only if, I decide of my free will to buy. As long as I keep… Read more »

nate ogden
Guest
nate ogden

odd you pick the republican Bush to follow up with another Obama constitutional violation. Wouldn’t the more likly scenerio be Obama or the next Democrat builds on this concept to require we buy vegetables to improve our health which will help lower the cost of ObamaCare which blows way out of budget. Or the next time a Democrat takes over a car company wouldn’t it be helpeful to require we buy electric cars from said tooken over company? When government is the sole insurer of everyone do we really trust them to not tell us what to eat, how much… Read more »

BobbyG
Guest

” this concept to require we buy vegetables to improve our health”
___

If my BMI, as recorded in the Vitals data in my doc’s certified EHR, exceeds 26, Michelle Obama and her Celery Stick Police will be a’knoockin’ forthwith.

nate ogden
Guest
nate ogden

send you off to the Pealogs for some re-education

Margalit Gur-Arie
Guest

Nate, you have your nightmares… and I have mine….

nate ogden
Guest
nate ogden

“The only good mechanism we have to ensure that this power does not get abused is to vote for politicians who use this power wisely.” Wouldn’t a smarter solution be to have a limited government that didn’t dictate any of these life soltutions to us? Further any personal fredoom we do cede be done to the state and not the federal government? The more authority and opportunity to provide to government the more tempting people will misuse that power to their personal advantage or belief. FYI ethanol in gas is great for our GDP and trade deficit more then it… Read more »

Margalit Gur-Arie
Guest

Peter, there have always been those who chose to defend some liberties and oppose others based on their personal views and values. In my opinion these people are not committed to the spirit of the Constitution. They are only committed to their own beliefs and are using the Constitution to promote and enforce those beliefs on others. Democracy in general is very vulnerable to such efforts and the Constitution is its best weapon in this country. We are ill advised when we try to minimize its importance because Democracy is, and will increasingly be, facing great dangers from global corporations.… Read more »

BobbyG
Guest

Getting WAY off-topic now.

Peter
Guest
Peter

“An invocation is neither an establishment of religion or a prohibition of free exercise.”

Funny how the invocation is always Christian and very often espouses Jesus as Lord – ever think that maybe Jews attend local meetings. Guess who’d scream the loudest about separation if a Muslim invocation was used.

I guess you can’t comprehend.

nate ogden
Guest
nate ogden

We are a christian nation Peter, what part of one nation under God aren’t you getting? Of course they are going to pray to Jesus. We aren’t a muslim nation, where do you see one nation under Mohammad in any of our founding documents? The fact that we allow people to pratice other religions doesn’t change we are a christion nation.

nate ogden
Guest
nate ogden

no peter i said the exact opposit everyone is free to think what they want but this is a nation founded under god. israel allows muslims and christians to live and pratice ib their jewish state, its still a jewish state

Peter
Guest
Peter

Nate, are you saying everyone MUST believe in a God and that is what the founding fathers meant?

I can think (not what the Catholic Church wants) and read, can you read and comprehend?
http://www.slate.com/id/2067499/

nate ogden
Guest
nate ogden

you also need to have someone teach you the difference between faith in god and religion, the constituion says a church like the church of england or the roman catholic church will not be favored on over the other, this has always been a nation under god.

Since you can’t grasp the difference between church and religion you will never grasp this

Peter
Guest
Peter

No one is going to force your church Nate to marry same sex, like no one is forcing your church to recognize women as equals in the church. I also doubt the church will be forced to hire gays, if a gay even wanted to work there. But I understand the reluctance of Catholics to agree with the emancipation of gays as they have always fought against alternate thought and freedom of the individual to think, act and believe differently than the Catholic Church. 600 years of brutal inquisition proved that as is the enabling of pedophiles in the church.… Read more »

nate ogden
Guest
nate ogden

Peter always the simpelton. I don’t have a church Peter. In fact I take issue with the way most Church’s have distroted their faith for power and money. Religion and church are not one in the same.

Try not to be such a projectionist idiot. I have no problem saying what I think, I don’t need someone like you to make things up for me

nate ogden
Guest
nate ogden

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof

Name once this has ever been done peter. An invocation is neither an establishment of religion or a prohibition of free exercise.

How do people get as misguided and negativly educated as you? Its a 200 year old document easily found on the internet. Is it really to much to ask maybe you read it before running at your mouth?

http://www.usconstitution.net/const.html#Am1

Peter
Guest
Peter

Margalit, I agree in limiting power of government and would have preferred a tax for health care as I don’t agree with mandating some of us to buy the most expensive system in the world when the majority gets their coverage subsidized tax free through employment . But because this country can’t see past the word “tax” we’d never get universal health care, nor would we get a chance to lower costs if we just continue to push people out of coverage who can’t afford the premiums. I guess you could argue that Libertarians could refuse to buy coverage and… Read more »

nate ogden
Guest
nate ogden

Peter a ban on same sex marriage is more then a ban, the alternative to a ban is government forcing people to recongize it. I don’t think 90% of those opposed to gay marriage would care what the gay couples did as long as they weren’t forced to recognize it. i.e. the catholic church being forced to cover gay couple on their insurance.

Can you link to anything showing them wanting a state religion?