Wednesday, July 04, 2012

Taxes, Penalties and Whether or Not to Buy Health Insurance

When I read Michael Gerson's musings about how public perception of the health insurance mandate might change if people perceive it, instead, as a tax, I didn't realize that the argument was being pushed by anybody else. As it turns out, it appears to be an argument of the "thrown sphaghetti" variety - part of a larger effort to throw objections to the ACA at the wall and see what sticks. Still, it's difficult to take this one seriously.

First, the label we hang on the mandate does not change either its amount or the triggering mechanism. Yes, I appreciate that due to the way our brains are structured we humans are subject to irrationality and misperception, and thus may actually react to the notion of a "tax" and "mandate" differently. But the relative costs and benefits are not difficult to understand, no matter what the mandate is called. Gerson appears to believe that people think like this:
"You have a choice, you know, between buying insurance and paying the penalty required by the mandate. If the penalty is a lot lower, you may be better off paying the penalty."

"But it's a mandate, so... no, I don't understand. I have to go buy insurance."

"It's a tax."

"Whoah... A tax... So I can, like, do a cost-benefit analysis?"
I personally believe that under the facts and circumstances, people who don't want to pay for insurance will largely figure out the costs and benefits, and the few who can't figure it out won't be as hung up on labels as Gerson believes - if somebody explains it to them, they'll "get it".

But more than that, the issue is irrelevant for the same reason another "spaghetti argument" fantasy - "Now that it's a 'tax' the mandate can be repealed through reconciliation" - is a fantasy. The mandate goes hand-in-hand with the ACA's changes to community rating and ban on consideration of preexisting conditions. The Republican Party is not going to be instructing people to choose a small tax over buying insurance, because the insurance industry won't stand for it.

More than that, if insurance companies decide that the mandate as implemented is insufficient to get enough people to sign up for insurance, I expect the Republicans to work very hard to increase its bite - a task made a bit more difficult by Roberts' label and Republican anti-tax and anti-mandate demagoguery, sure, but they'll find a way.

Republicans can talk about repealing the mandate and the community rating/preexisting condition language but, as much as it might work in the abstract, due to insurance industry pressure the Party will not urge the public to treat the mandate as a mere option and to go without insurance. And as you cannot repeal the community rating/preexisting condition language through reconciliation, the mandate will not be zeroed out.

(The same also extends to various Republican proposals to block funding for the implementation of parts of the ACA. Such arguments make a mockery of past Republican demagoguery about the need for certainty in the marketplace - they would be creating an uncertain, unstable environment. But for that very reason, you can expect that the insurance industry will put the kibosh on Republican machinations that could or will increase its administrative expenses or diminish its profits.

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