OP-ED

The Health Care Reform Law: What’s the Big Deal?

I’m not an attorney, so I cannot help the federal judges struggling to figure out whether the individual insurance mandate in President Obama’s healthcare law violates the interstate commerce clause of the U.S. Constitution. But as a taxpayer (and formerly a professor of public policy), it’s hard for me to understand what all the fuss is about.

The Patient Protection and Affordable Care Act created a monetary incentive for all taxpayers to obtain health insurance. Beginning in 2014, people without insurance will pay more to the IRS than people with insurance. Like the tax code as a whole, the rules for calculating the size of the penalty are incredibly complex. But once the penalty is fully activated in 2016, a single individual with no dependents will pay an extra $695, or 2.5% of his or her applicable income, whichever is higher. An uninsured family of four with annual income of less than $110,000 will typically pay $2,085 more than it would if insured.

This tax penalty is known as “the individual mandate.” It’s an important part of the new law because starting in 2014, insurers are prohibited from denying coverage or charging higher rates based on preexisting conditions. Without the mandate, people might wait to buy insurance until they needed medical care. To keep insurance affordable for patients and profitable for insurers, healthy people need to pay for coverage before they get sick.

Various courts have viewed the tax penalty in different ways. But some have concluded that it is a huge encroachment on individual rights. As a ruling from the U.S. 11th Circuit Court of Appeals put it, “This economic mandate represents 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.”

This is the part of the debate that I find so curious. There is nothing novel or coercive about linking taxes to the purchase of specific types of goods or services. As any taxpayer probably knows, there are many tax provisions that raise or lower your tax bill depending on what you have bought and what you have elected not to buy.

“Obamacare” is unusual, perhaps even unique, in that it uses a penalty to encourage a purchase. Usually we use penalties to discourage a purchase and subsidies to encourage a purchase.

Obamacare flips this around, which is probably why people react to it so viscerally. We grumble when we pay excise taxes. We sigh when we see others getting tax breaks that don’t apply to us. But we roar when a penalty impels us to buy something we don’t want.

To my sober economist’s mind, however, there is little difference between a penalty and a subsidy. Either way, the government is rewarding or penalizing you depending on what you buy and what you don’t buy. And the resulting difference in taxes can be huge.

The most important of these provisions allows homeowners to deduct from their taxable income the money they spend on mortgage interest. For a typical homeowner, this can reduce taxes by hundreds or thousands of dollars. Those of us who choose to rent instead of buying with a mortgage from a bank are in effect penalized, and we pay this penalty every year of our lives until we either die or buy a house on credit.

Having spent half a day last April doing my family’s taxes, I’m all too aware of the other individual mandates built into our federal laws. Here’s a partial list of the specific purchases that my tax preparation software inquired about when it “interviewed” me while preparing my federal return: moving expenses, charitable contributions, student loan interest, tuition, safe-deposit fees, legal expenses, investment expenses, hobby expenses, hybrid cars, child care and, notably, medical expenses and health insurance premiums. Without this information about my retail activity, the IRS apparently couldn’t calculate how much money my family owed Uncle Sam for 2010.

In California, where we have both a state income tax and a sales tax, the list goes on. Californians are taxed differently depending on whether they buy low-emission vehicles, solar panels, California-grown rice straw, habitat restoration supplies for salmon and steelhead trout, and components to build the Joint Strike Fighter aircraft.

Every tax creates winners and losers. To evaluate whether a specific tax is good public policy, all we can do is judge whether it distributes the tax burden fairly and whether it creates positive economic incentives.

It makes sense for governments to use tax laws and other types of economic incentives to encourage behaviors that are good for society or that increase overall economic welfare, and to discourage behaviors that cause general economic harm.

When pundits oppose a particular economic incentive, they often refer to it derisively as “social engineering.” The label is apt because the legislator’s goal is indeed to engineer society by providing tangible monetary incentives that reward desirable behavior while penalizing behavior that harms the economy or other social goals.

By creating the insurance mandate, Congress intended to discourage a behavior it deemed harmful. Deadbeat patients who consume subsidized healthcare without paying into the system impose unfair costs on the rest of society.

At the same time, Congress intended to encourage behavior it deemed socially and economically desirable. According to a landmark study published in July, people chosen at random to receive Medicaid insurance in Oregon were already healthier just one year later. They also had fewer unpaid medical bills sent to collection agencies. Over time, people with health insurance will probably miss fewer days of work, spend less time on welfare and avoid defaulting on their debts through personal bankruptcy.

The bottom line: There really is no such thing as an individual health insurance mandate. No one gets carted off to jail if they fail to buy insurance. Instead, they pay a tax penalty just like the tax penalties we face for other commercial decisions we make each day. Under Obamacare, Americans are free to choose whether or not to buy insurance, just as they are free to choose whether to buy a house, or solar panels, or hybrid cars, or child care or cigarettes. Let’s stop suggesting otherwise, and start referring to the individual health insurance incentive.

William D. Leach has taught public policy and economics at Cal State Sacramento and UC Davis. This piece first appeared in the Los Angeles Times.

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nyp
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nyp

to “BobbyG” – leaving aside the other mud-wrestling in this thread, you have my sympathy for the end-of-life challenges you have faced in caring for your family.

BobbyG
Guest

Thanks. I appreciate it. I’m hardly unique.

nyp
Guest
nyp

It appears to be “nate’s” position that preventative medicine can never reduce healthcare costs because a person who is prevented from having diabetes or a cholesterol-induced infarction at age 40, will eventually die of something else at age 70, when inflation has inevitably increased the cost of health. Indeed, according to Nate, it is more cost-effective not to keep people from having medical problems at a young age, since their disease is cheaper now than it will be later on.

That makes no sense to me.

BobbyG
Guest

It’d be cheaper to simply kill everyone who gets arrested, as well.

A number of societies have tried just that. All the Due Process stuff is an expensive pain.

DeterminedMD
Guest
DeterminedMD

Some societies put addicts to death. Yeah, that is a harsh assumption at moment one for all addicts, but, what do you do with the terminal addicts of society, who never want to change, who do not accept recovery, have no concern with what their consequences bear on those around them? Oh, I was talking about those addicted to power and money. Those with chemical addiction without change, just ship them to the nearest deserted island? Maybe there are poppies on them. Poppies, lots and lots of poppies. Is this what the Wall Street greedos go to sleep counting in… Read more »

BobbyG
Guest

Lety’s just kill anyone and everyone who is “inconvenient,” right, Nate? Save lot of money.

BobbyG
Guest

You too, Doc, ‘eh?

nate ogden
Guest
nate ogden

Lety’s?

Lets?
Leftys?

no idea what your trying to say, poor grammer makes it hard to communicate, an extra second spell checking can save a minute repeating yourself.

BobbyG
Guest

Doctor, why are you even IN medicine? You are one angry, confused individual.

DeterminedMD
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DeterminedMD

So, you surmise that I advocate for limits and accountability makes me inappropriate to be a physician? Honestly, ask your physician colleagues who practice clinical care at least 80% of their work week this question: Would you matriculate into medical school back when you did if you knew where health care would be as of October 2012? If they would look you in the eye and be brutally candid, I would make a gentleman’s wager with you no better than 50% would say yes. But, to insure an honest reply, those who have kids, how many of them encourage their… Read more »

nate ogden
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nate ogden

what part of middle school math don’t you understand? Before you mischaracterize the facts I am not saying we shouldn’t help people live longer. I’m just saying lets not be idiots about it and claim we are saving money while in fact greatly increasing future liabilities. I know you Keynesians and liberals don’t understand consequence but its real, unlike most of your science. It’s been said the first person to live to the age of 150 has been born. That means it is likely under current law this individual will work for 30 to 35 years and collect Social Security… Read more »

DeterminedMD
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DeterminedMD

Hey, what is wrong with arguing we should not help people live longer who have come to the end of their lives, when it is on society’s dime and not the patient’s or families pushing for full court presses? Per this crowd who argue vehemently to keep the status quo with social security, Medicare, and what PPACA has to offer as in place, there are only 3 real conclusions to their arguments to do so: naive and terminal optimism that the realities of life will override the logisticaly boundaries of nature and finite financial options, or, personal agendas that only… Read more »

BobbyG
Guest

“Hey, what is wrong with arguing we should not help people live longer who have come to the end of their lives” ___ Nothing, except where it extends to impugning the motives of other. Doctor, I am POA on my mother (since 2004). She’s approaching 90 and in long-term care, for going on 4 years now. Private pay to the tune of about $6,500 a month, I might add. I specifically forbade my elder care attorney to even bring up the topic of estate “asset protection.” She has a DNR, and strict “no-transfer / comfort care only” orders in her… Read more »

DeterminedMD
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DeterminedMD

Again, my comment was not directed specifically to you, and I offer my sincere respect for your efforts to support your family members.

That said, the comment isn’t directed to people like you who take responsibility in such matters. Unfortunately, there are a sizable number who do NOT want responsibility nor accountability.

Hence the financial crisis that is Medicare.

nyp
Guest
nyp

Putting aside the vulgar personal attacks in Nate’s post: 1. He is completely wrong that preventative programs (like smoking cessation, obesity control, childhood immunizations, low-dose aspirin, etc.) See,, e.g.,: http://www.rwjf.org/files/research/48508.costsavingspreventivecare.report.pdf 2.I know all about the Liverpool Care Pathways, and your suggestion that they constitute “death panels” or that they have anything to do with Romneycare is absurd. 3. Your Ayn Rand-ian rant about government as a “confiscator” betrays your extremist sentiments. I have no problem with the government taxing my income in order to pay for our defense forces, for our border patrols, for the NIH, for Medicare, for Social… Read more »

nate ogden
Guest
nate ogden

Wow, Robert Wood center for propoganda, well if they say so it must be true. Lets throw out your junk science and look at real numbers, something I can do becuase I actually administer the health plans so I know for a fact what does and does not save money. Preventative care and wellness does not save a penny in total cost, it might delay or push it off on someone else but it never saves. If they don’t die of a heart attack at 50 then they will die of cancer or something worse at 80. Are you really… Read more »

BobbyG
Guest

The ever-so-polite, All-Knowing Nate.

nate ogden
Guest
nate ogden

“2.I know all about the Liverpool Care Pathways, and your suggestion that they constitute “death panels” or that they have anything to do with Romneycare is absurd.” First I never said they had anything to do with Romney care, I responded to your erronous claim that republicans respond to comparitive effectiveness as death panels. This is a lie. Second how does a set of guidelines that suggest withholding food and water from patients not a death panel? “I have no problem with the government taxing my income in order to pay for our defense forces, for our border patrols, for… Read more »

nyp
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nyp

let’s see now: 1.”DeterminedMD” says that we can’t rely on polls to judge the popularity of Romneycare because the polls don’t “interview all the residents of the state.” Isn’t much I can say in response to that. 2. “Nate” says that Romneycare is a success only because it depended on some federal support for some of its funding. But that is true of hundreds of state programs across the country. State governments are badly designed as revenue-generating mechanisms. That is why so many programs depend on federal grants for support. So what? 3. Somewhat more to the point, he points… Read more »

nate ogden
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nate ogden

““Nate” says that Romneycare is a success” No Nate never said that, Romney care is a failure on many levels, one of which is out of control cost. “So what?” Well I would think if I was one of those individuals that was dependent on these State programs and it was taken away that would be a problem. Giving people benefits then taking them away depending on the election year and whims of polls is not a very humane way to treat the lower classes. Its also very inefficient to spend billions improving the health of a group of people… Read more »

DeterminedMD
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DeterminedMD

So, by your retort that not trusting polls is unreasonable, what, we are to assume every poll question is unbiased and objective? Yeah, as long as it supports your argument/position. I said in the comment, “do polls interview all the residents in the state” to infer that talking to several hundred people in a state of what, 2 million ?, that is not going to guarantee an accurate portrayal of the population. I did not even try to claim the percentage would be the opposite, but you seem to infer that 20% of the population not satisfied is inconsequential. Yeah,… Read more »

jim
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jim

romneycare is popular because it is financiallybeing bailed out by the federal government repeatedly… including a gimmick in the HC law that redefines certain Mass hospitals to get them an extra $400 million.

if it needed to be self-sustaining— it would never have been implemented— just like the CLASS act…

nyp
Guest
nyp

to “determinedMD”: 1. Polling data show that only 21% of Mass residents oppose the Romney health reforms. http://www.hsph.harvard.edu/news/press-releases/files/blendon_topline_6.6.11.pdf 2. And now Mass has a 98% insurance rate. the fact that so many American families no longer worry that they are one medical crisis away from financial ruin may not seem important to you, but it does to me. 3. we have had “mandates” in federal law ever since the first congress required citizens to purchase firearms in the 1792 Militia Act, and the Second Congress required merchant seamen to purchase health insurance in the 1798 “Act for Relief of Sick… Read more »

DeterminedMD
Guest
DeterminedMD

To tie in both the above NYP comment and the last retort from Mr G at 7:12PM regarding reading his blog comment of Nov 2009, statistics can be twisted to support a cause if one is slick enough to throw out as many different perpectives to confuse and deflect from the original concern. I mean, really, that mortgage deduction tangent in the middle of this thread, what was that about? Do polls interview all the residents of the state? If they could and people understood the poll question, if presented as unbiased and objectively as possible, you think that number… Read more »

BobbyG
Guest

Doc, you and I share WAY more concerns than your reflexive unfocused anger allows to surface.

“one doctor who smells a rat and seems to be one of the few who is willing to speak out”

___

Keep up the good fight.

nate ogden
Guest
nate ogden

“the fact that so many American families no longer worry that they are one medical crisis away from financial ruin may not seem important to you, but it does to me.” That’s because the entire state is one year of reduced federal support from financial ruin. Federal Medicaid Assistance Percentage (FMAP) ARRA and subsequent federal jobs legislation increased the Federal Medicaid Assistance Percentage (FMAP) received for Medicaid payments in Massachusetts to 61.59%, from a pre-ARRA level of 50%. These funds have allowed the state to maintain critical health-care services to our citizens. FMAP dollars allowed many budget areas in the… Read more »

nate ogden
Guest
nate ogden

“Yet somehow we have not tumbled down the slippery slope into Stallinist tyranny. I wonder why?”

Its a long slope and while we have fallen far we have not yet hit bottom….not sure thats something to celebrate. I think most democracy loving americans would prefer to stop the slide and start climbing up before we turn into a full fledged communist/marxist/socialist what ever the ideology de jaur of the clueless is these days.

nyp
Guest
nyp

to “determinedMD”: 1. you don’t really address the obvious flaws in your “slippery slope” argument. The law books are filled with laws that have slippery slopes. Under its commerce clause powers the Congress could pass a law requiring every car sold in America to have a soda dispenser. What keeps it from passing absurd or oppressive laws is a little thing called democracy. 2. Mitt Romney’s Massachusetts health law is extremely popular. It should say something to you that there is no major politician in the Commonwealth who advocates it repeal. Perhaps that’s because Massachusetts now has, on a percentage… Read more »

BobbyG
Guest

Click “Like” button.

DeterminedMD
Guest
DeterminedMD

See if you “like” this and share it with your physician pals: http://www.nytimes.com/2011/10/18/us/massachusetts-tries-to-rein-in-its-health-care-cost.html?_r=1 Yesterday’s NYTimes article. “Global Payments”. Is this the new word to replace “capitation” that was so effective and well received back in the 1990s? Gee, we saw how well the word stimulus survived and supported Obama’s newest offer to save the economy. Yes, Massachusetts’ experiment is the poster child of what PPACA will metastasize into. Screwing the very people needed to keep the health care system afloat. Are you supporters of PPACA starting to get a little afraid that the Supreme Court may not rule in your… Read more »

BobbyG
Guest

You are so charmingly angry at everything and everyone.

DeterminedMD
Guest
DeterminedMD

No, not everything and everyone, just those who support a worthless cause that does not have an agenda to improve our society’s health. A partisan legislation that is supported by organizations that such law superficially would take away sizeable financial support from said orgs? You really think insurers, big pharma, hell, even the AMA would willingly sacrifice profit for the sake of the public? If you really, honestly believe so and would say yes, I would rather be angry than delusional. The Occupy Wall Street crowd always seem to be smiling and having a good time in their protests. But,… Read more »

BobbyG
Guest

“You really think insurers, big pharma, hell, even the AMA would willingly sacrifice profit for the sake of the public? If you really, honestly believe so and would say yes, I would rather be angry than delusional.”
___

SLOW DOWN, and take some fucking time to actually READ what I’ve researched and written on the topic.

http://bgladd.blogspot.com/2009/08/public-optional.html

Good Lord.

BobbyG
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DeterminedMD
Guest
DeterminedMD

Go to Paul Levy’s most recent post prior to this one and just highlight the sentence “hear the lie enough and it becomes the truth” and just run an endless loop after your comments so no one can reply. I guess you can’t shout down your detractors at a web site, so the best alternative is keep repeating your refuting my concern and hope everyone will buy it. Care for a little transparency, NYP? Your political affiliation? Mine has and will be until I die as fierce independent. My allegiance is to people, not a party or political gain. You… Read more »

Nursing services in San Francisco
Guest

interesting debate..

jim
Guest
jim

here is the issue — if it really was a tax (and I will not discuss the merits, or lack thereof of the government being able to make a distinction)… the cbo would have had to score the bill where ALL OF THE PREMIUMS WERE COUNTED IN THE COSTS OF THE BILL. This was what happened to Clinton reform effort in 1992. If that happened, the chance of passing with a price tag in the multiple trillions would never have passed. It is as simple as this. Not sure if Mr. Leach understands this fact, but would be interested to… Read more »

Peter1
Guest
Peter1

The mortgage interest deduction only can be claimed if you itemize your return, not what most moderate income taxpayers are able to do – so the “rich” get the subsidy.

The penalty for not buying health insurance attempts to force you to buy the most expensive product in the world – is that an incentive? It’ll come down to what subsidy you may get against the policy cost as opposed to just the penalty, which is pretty small. Notice that employees with company paid insurance don’t get taxed on the benefit.

Jeff Balke
Guest
Jeff Balke

I find your site informative. I am an internist in a large health corporation. I would like to contribute.
Jeff Balke, MD
Board Certified Internal Medicine
Chief Resident University of Minnesota 1992/3
612-868-2923

Margalit Gur-Arie
Guest

Jonathan,
I don’t view tax funded universal health care as a penalty, since there are benefits received in return for the taxation. In the current arrangement, the 695 does not buy you anything. If you have no insurance and show up at the ER, they will not deduct 695 from your charges.

You are correct regarding my dislike of the penalty not being dependent on its value. It is the principle that I object to.

Jonathan H
Guest
Jonathan H

Margalit, You don’t like the structure of the reform program. It really has nothing to do with $695. If the minimum penalty number was $500 or $5,000, or the maximum was 1% or 5% of income, it wouldn’t make you like it any more. If the value of the penalty was set by a committee of behavioral economists who estimated the optimal values of penalties and subsidies to get 99% coverage, you still wouldn’t like it. Structurally, how is the approach you prefer different from a mandate from which one cannot withdraw, and so no penalty for non-participation can be… Read more »

BobbyG
Guest

Nice debate.

Margalit Gur-Arie
Guest

Jonathan, I do criticize the fact that the 695 is a political number because I do not agree with the compromise that necessitated a political number to be created. I do understand that there was no way for anybody to pass Medicare for all, which is my solution of choice, but there could have been options other than the one that Candidate Obama publicly opposed. I don’t like the mandate and I don’t like the constant vacillation between “it’s a tax” and “it’s under the commerce clause”. I think it’s just plain indefensible, and I think the President knows that,… Read more »

Jonathan H
Guest
Jonathan H

I forgot to mention that the interest deduction also serves the interests of real estate agents, in addition to home builders (who are more nearly the “intended” beneficiaries than banks). And how’s this for irony? From socialist France: France does not allow a home mortgage interest deduction. In 2007, newly-elected President Nicolas Sarkozy proposed creating the deduction as part of his legislative plan for sparking the French economy.[4] In August 2007, the Constitutional Council, the highest court in France, struck down the mortgage interest deduction as unconstitutionally creating a tax advantage that goes far beyond its stated goal of encouraging… Read more »