President Obama sought to help more people afford better care. That’s a goal I share.
The Supreme Court says the law is constitutional. That’s a decision I won’t second guess.
So are more people going to afford better healthcare? No!
The individual mandate is poorly designed and it is unlikely to have a significant effect on healthcare outcomes or costs in this country. I explained this in a speech I gave to the Connecticut Chapter of the Federalist Society in January. Here is the relevant portion:
Let’s start with a thought experiment. You drive into Hartford tomorrow morning and there is a new sign on the parking meter. Under the new rules of the parking authority, you must pay $20 for two hours of parking.
Interested to find out why rates have gone up so much, you keep reading. The fine print says clearly, “Anyone parked at an unpaid meter will be fined $5.”
It’s $20 to park, or $5 to pay the fine. How many of you would pay to park?
This is my analogy for the health insurance mandate in the healthcare reform law, commonly called Obamacare. Either buy something really expensive or pay a fine much less than it would cost.
* * *
Let’s talk real numbers.
Effective Jan. 1, 2014, people without insurance will pay a fine of $95 or 1% of their income, whichever is higher.
However, the subsidies within the law set the maximum premium cost for someone at the federal poverty line ($22,350 for a family of four) at 2% of their income. In short, the fine is half as much as the maximum premium cost.
In 2016, when the penalty rises to $695 or 2.5% of income, the decision for people at the federal poverty level becomes easier.
Insurance is .5% less of their income than the fine, so it makes sense in most cases to buy insurance.
Once you reach 133.01% of FPL, things stop being so clear. At that point your insurance cost is capped at 3% of your income – or .5% higher than the cost of the fine.
Eventually, at 300% of the FPL ($67,050 for a family of four), the amount of income allowed for insurance costs rises to 9.5% or almost four times as much as the fine.
This is where the parking meter numbers come from.
I am not an expert on crime and punishment, but this doesn’t look like what we normally see. Think about insider trading or other white-collar crimes.
For example, imagine someone is convicted of embezzling $100,000 and fined $50,000 while keeping their ill-gotten gains. It just doesn’t make sense.
Crime shouldn’t pay, as they say.
The design of the mandate shows that not having insurance isn’t a crime – because you are not punished for violating this law. As I see it, you are inhibiting the efficiency of the welfare state so you have to pay more of its costs.
* * *
I have asked people who support the mandate about this – the disconnect between the cost of insurance and the size of the fine/tax – and they argue people will follow the mandate because they don’t want to break the law.
I think it is more likely that not having insurance will be treated like a speeding ticket or not feeding the meter when you don’t have quarters.
It will be a crime – to use the term lightly – without stigma.
The argument that the penalty is not a fine, but simply a tax, supports this belief. Offering people a tax as a way out of having insurance is a way of giving them permission, as long as they pay for it.
If someone who fails to buy insurance is a drain on the economy through free-riding, why does it make sense to tax them for less than the cost of their burden?
The answer is that most people who support the mandate – people on the left – consider it anathema to fine someone who is poor because they can’t afford something. This taboo prevents them from instituting a mandate that might actually work.
* * *
On this point, mandate supporters are probably onto something. If the mandate penalty were high enough to actually work, it would probably lose any remaining popular support.
As it is, we don’t know how people will react to the penalty once it takes effect. When Connecticut instituted the income tax two decades ago, the public outcry did not begin until withholding began.
We have not reached that point yet with Obamacare.
Some people will be motivated to buy insurance through the mandate. For example, if you want to run for office or have outstanding warrants and don’t want to draw attention to yourself.
From an economic perspective some people might decide paying $8,379 and having insurance is better than paying $2,205 and not having anything.
But that is someone with more than $6,000 in disposable income. How many people earning $89,400 with four kids have that kind of money available?
The employer mandate, without getting into too much detail, I expect to fail in a similar way. The incentives are not properly aligned and, as all conservatives know, people respond to incentives.
* * *
When I worked at a local weekly, I covered an appearance by Rep. John Larson in our town. He said something that helped me to understand better where he was coming from on the healthcare law.
“Premiums may increase for some people, but your out-of-pocket costs are going down,” Larson said, explaining out-of-pocket costs are what matter to consumers.
This attitude sums up the Obamacare approach to healthcare: it doesn’t matter if it gets more expensive as long as it costs you less. Unfortunately this attitude is unsustainable fiscally – and it does nothing to accomplish the stated goals of many on the left, to expand access to healthcare.
Zachary Janowski is an investigative reporter for the Yankee Institute for Public Policy, Connecticut’s free-market think tank. In 2010, he completed the Connecticut Health Foundation’s Health Leadership Fellows program. He publishes his work at www.RaisingHale.com.
Health Justice CT provides a public forum for conversations, ideas and collective action. The opinion expressed on this site are those of the authors and do not necessarily reflect the views of HealthJusticeCT or our funder.
Image credit by iStock Photos