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    How Chief Justice Rube Goldberg Saved the Individual Mandate

    By Dan Kervick on Thu, 06/28/2012 - 11:37pm |

    Imagine that the US Congress someday decides that as a matter of national security it is imperative for each American adult to be in possession of a smartphone.  (Perhaps they believe that we might all need to receive an important text message from Homeland Security in the event of a major terrorist attack.)   Suppose also that at the time of this decision there are 100 million American adults still without smartphones, and that the average smartphone costs $200.

    According to the Supreme Court of the United States, here is a procedure Congress is permitted to follow:

    Step 1: The government levies a one-time $200 tax on everyone who does not possess a smartphone.

    Step 2: The government purchases 100 million smartphones from companies of its choosing.

    Step 3: The government delivers the 100 million smartphones to the people without smartphones.

    But here is something Congress is not permitted to do:

    Step 1: The government mandates that everyone without a smartphone buys a smartphone from the company of their own choosing.

    Step 2:  Nothing else.   All done.

    Now isn’t this restriction ridiculous?  For one thing, the extra steps in the first procedure add pointless bureaucratic costs to accomplish the very same end result accomplished by the second procedure.  Also, in the second procedure, American adults without a smartphone get to choose their own smartphone company.   But if the first procedure is followed, the government buys the phones for them from the companies the government chooses.  What sensible country would permit the former procedure but prohibit the latter?

    [Read the rest at New Economic Perspectives]

    Comments

    Government food bank - you will be required to eat at the government soup kitchen, and if not, you'll pay a refusenik tax and then be required to eat at the government soup kitchen.

    At the same time, it's kinda our own damn fault - too damn tricky on that ACA. If refusenik fines was supposed to pay for it, why not just levy an income-scaled levy for those without health care and provide it out of Medicare? Would that need 3000 pages of fine print? If you want the care from another provider, you get a letter from your doctor transferring care to X provider - your payment & government matching move over. (a bit like those private school credits the right is always yammering about)

    I'm waiting for the fine tax on blonde-haired, green-eyed left-handers.

    Next time I get a parking fine tax or speeding ticket tax, I'll be sure to let my kids know I'm just being a fine upstanding citizen.

    For a group that dislikes taxes, this fungible "everything is really a tax" notion will extend their goofiness a long way.


    by PeraclesPlease on Fri, 06/29/2012 - 3:05am

    Does the term "mandate" imply permanency; a right?

    Whereas a tax can be adjusted or eliminated, depending upon whose in power?


    by Resistance on Fri, 06/29/2012 - 3:53am

    I don't think mandates have anything to do with permanent rights.  A mandate is just a law requiring you to do something.  You can adjust a mandate with new legislation as easily as you can adjust a tax.


    by Dan Kervick on Fri, 06/29/2012 - 8:02am

    Last night, I drafted an entire post on what's a tax, what's a fine, what's a fee and what's a penalty.  The whole thing kind of devolved into a kind of reductionist soup.  Because, when it comes down to it, especially from the perspective of personal finance, it very often doesn't matter.

    This is why I never understood the "your taxes will go up," argument about single payer.  Somebody is going to take money out of your check every two weeks.  It might be the U.S. Treasury, it might be Aetna.  What's acceptable should come down to who you believe will deliver the best services at the lowest costs, not whether you're paying a tax or a bill.

    My ethical problem with the health care mandate or with your hypothetical smartphone mandate is that I believe that if the public is going to demand that the individual make a purchase that the public should provide some non-profit option to the consumer, at the public's expense.  The government should, in your example, make smartphones and administer its own service plans, competing with private industry.  The government should also, in exchange for the mandate subsidy, tightly regulate the private providers, making sure that the phones are affordable, that the service is acceptable and that costs don't skyrocket.

    To me, the biggest question about the ACA, now that the mandate issue is settled, is whether or not the ACA asked enough of the private insurance market to justify the mandate subsidy.  Time will tell.


    by Michael Maiello on Fri, 06/29/2012 - 11:04am

    This whole debate ignores the central point: People are already getting a service and others are already buying it for them.

    If you want to make any of these arguments make sense, then you have to repeal the law that says everyone, regardless of insurance status, has to be treated.

    As Scalia put it, "Un-obligate yourself." Or as Ron Paul put it, "Let them die."

    Then we can have a discussion about forcing people to buy coverage. Right now, they and we have already bought it and are already getting it, albeit in a very bad way.


    by Peter Schwartz on Fri, 06/29/2012 - 11:10am

    Except that this is not as big a problem as some would have you believe.

    I wrote this for Forbes back in 2009:

    "The uninsured, it turns out, aren't free riders at all. Instead of piggybacking on the generosity of others, they just use less health care. Uninsured individuals spent 38% less on health care than insured people did in 2008. They paid $30 billion out of pocket. Poorer uninsured people also used $13 billion in care that was paid for by charities and government programs. At most, the uninsured left the system with $7 billion in unpaid bills. That's a lot of money, but it's only 1.1% of the $1.3 trillion spent on health care that year."

    Is that a stupid way to deliver health care?  You bet.  But most uninsured people just pay their bills in full.  So, it's hard to argue that people are buying them anything (with the exception of charities who are acting freely).  Again, I think that's a sorry state of affairs, I just don't think you can point to the uninsured as taking advantage of anyone in aggregate.


    by Michael Maiello on Fri, 06/29/2012 - 11:22am

    What about all them bankruptcies from not being able to pay one's medical bills?

    But there's another point about insurance...

    Insurance is there and costs something even when you don't use it. The cost is based on the risk, which is partly calculated on actual expenditures but also on exposure.

    The obvious example most people are familiar with is...car insurance. Often, the person in the wrong will pay for the other person's repairs out of pocket in order to keep his premiums from going up. He wants it off the books.

    That saves him from seeing his premiums go up, but they don't go down either. And if there's a police report, they may get reported and cause his premiums to go up. Not sure if they've gotten this clever.

    My point is: buying insurance isn't like buying almost anything else. You don't "get" anything except peace of mind. You get "coverage," which is "nothing," but a very expensive "nothing."

    So even if they don't use their "coverage," we are still paying for it. So a lot depends on how insurers (and the government and providers) are calculating this risk, this exposure.

    And we are paying for it in other ways, including having all those sick people miss work, go on disability, impact other peoples' health, the medical costs of having to treat a greater number of deeply sick people who haven't done prevention or seen primary care physicians, and so on.


    by Peter Schwartz on Fri, 06/29/2012 - 11:39am

    Moreover, when the poor pay out of pocket, they pay much more for services.

    Well, that differential ripples through the economy. Maybe it means they need food stamps instead of being able to buy food. And so on.


    by Peter Schwartz on Fri, 06/29/2012 - 11:42am

    To your point about bankruptcies and the medical debts discharged -- wouldn't those fall into the $7 billion -- the less than 1% of the total health care spend?  They're negligible in aggregate, even if they're terrible for the people who have to endure them.  To the extent that these people wanted insurance but couldn't get it, the ACA is great, by the way.

    As for the rest of your argument -- sure, insurance actuaries set rates for the rest of us based, in part, on how many people they think will opt out and take their chances.  So, we do pay for that choice. But it seems that part of the problem is the primacy of insurance as opposed to the primacy of access to health care services.  Maybe insurance isn't what this whole debate should have been about.

    The insurance companies take people who opt out into account when they set prices.  Insurance companies also take their desired total profits into account.  Nobody has done anything about that much bigger problem.


    by Michael Maiello on Fri, 06/29/2012 - 11:50am

    In what sense will people not be allowed to buy health insurance from the company of their own choosing?

    This is more like the government deciding that you can't buy a car without a seatbelt or without a catalytic converter or that doesn't meet certain safety standards.

    Yes, that does limit your choices, but this limitation is considered worthwhile. And there are still plenty of choices to make.


    by Peter Schwartz on Fri, 06/29/2012 - 11:06am

    Not my claim.  The part about people not being able to buy from providers of their own choosing was just built into the hypothetical smart phone example as an example of something Roberts seems to think is constitutionally OK.

    My post isn't really about health care.  It's about the principles governing the limits on what the US Congress can and cannot do.

    Apparently, the government can't force Peter to give some money to Paul.  But it can force Peter to give some money to the government so that the government can give the money to Paul.  That seems like some kind of dialogue from an absurdist drama to me.


    by Dan Kervick on Fri, 06/29/2012 - 11:55am

    If your employer offers a plan, I don't think you can opt out and go shop on the exchange, can you?  In that sense, you can't choose (not that you could had great choices pre-ACA).


    by Michael Maiello on Fri, 06/29/2012 - 11:58am

    Perhaps Roberts understood the liberal mind and realized they would turn a win by Obama into a loss as everyone rehashes ACA and compares it to every other option that isn't available. 

    I wanted single payer. I didn't get it. I didn't like this bill at first. But so what, let's move on, try to improve it.

    You know, I run a small business. Everyday I have to settle for less than I want to move forward inch by inch. I don't have the luxury of telling a client I don't like his procedures. Hell, most of the time I can't even tell my employees what I really think. To compromise, get what you can and move ahead a little bit is real life.

    So we got a bill where insurance companies will still rip us off, at least for the foreseeable future. I have big client companies who don't pay me in  thirty days like my invoice demands but pay in 60 or 90 days and take the 2
    % discount anyway. So, do you think I risk complaining and putting something on their list that might suggest one of my competitors. No, I eat shit and keep working.

    What's being overlooked in this bill is that most states will set up exchanges. Eventually, there will be competition and focus on what's being delivered and what it costs. Is there any reason a Democratic Congress couldn't add provisions to encourage preventative health, better results?  Will we have a chance at a Democratic Congress if we all devolve into another six months of hand wringing over a less than favorable bill?

    Dan, I needed to get this off my chest and this seems like a good place to do it even though I've probably missed the point of your blog. I lack the time to write my own blog. Peace.

     


    by Oxy Mora on Fri, 06/29/2012 - 12:08pm

    Perhaps Roberts understood the liberal mind and realized they would turn a win by Obama into a loss as everyone rehashes ACA and compares it to every other option that isn't available.

    Yep.


    by tmccarthy0 on Fri, 06/29/2012 - 12:24pm

    You are 100% correct. From Perhaps to Peace.

    There are more cost controls in this bill than it's given credit for.

    Cost controls for the cost of insurance and for the cost of medical care.


    by Peter Schwartz on Fri, 06/29/2012 - 1:18pm

    An interesting critical analysis by (conservative) legal scholar Richard Epstein:

    He will no doubt attract praise in some quarters for splitting this baby. But his decision is wrong. As a matter of constitutional text, legal history and logic, the power to regulate commerce and the power to tax should not be separated. It is not good for the court or the country that the chief justice’s position in such an important case is confused at its core.
    ...

    Chief Justice Roberts has ignored this fundamental principle: If direct regulation is beyond the scope of the Commerce Clause (as he held), then taxation as an indirect route to the same regulation should be off limits as well (as he failed to hold). This is a baby that should not be split. His attempt to do so undermines his ruling, the court and the Constitution.


    by Michael Wolraich on Fri, 06/29/2012 - 1:45pm

    Interesting, indeed.


    by Peter Schwartz on Fri, 06/29/2012 - 1:57pm

    He is totally wrong. The power to tax is the power to destroy, and we like it that way...(except for the weed stamps). Any economic endeavour can pencil out profitable or not depending on tax policy.


    by jollyroger on Fri, 06/29/2012 - 2:03pm

    I agree with Epstein when he says:

    There is no practical difference between ordering an action, and taxing or fining people who don’t do that same thing. If the Constitution limits direct federal powers, it must also limit Congress’s indirect power of taxation.

    But as a conservative, Epstein argues from the tight connection between regulation and taxation, and the conservatives' position on commercial regulation, to more stringent limits on taxation.  I would go the other way and argue instead that Roberts should have recognized that the broad power to tax, coupled with the tight connection between taxation and regulation, naturally entails a broad power to regulate.

    Roberts decision seems transparently political, shallow and unprincipled to me.

     

     


    by Dan Kervick on Fri, 06/29/2012 - 2:03pm

    Note that Epstein implicitly asserts that transfer payments are unconstitutional.  He thinks the redistribution of personal income is not a public benefit.   I would argue that our society as a whole would benefit socially, morally and economically from a more equal distribution of income.


    by Dan Kervick on Fri, 06/29/2012 - 2:07pm

    I presume that Epstein believes Roberts should have ruled against the act, but he doesn't try to make that case in this article. His point is simply that it is inconsistent to deny the government the power to regulate commerce while permitting it to use the power of taxation to achieve the same end. In other words, Roberts should have permitted both taxation and regulation or neither--which I think is not far off from your own thesis.

    I'm no legal scholar, but Epstein's argument seems plausible to me. If the government can assess a tax "penalty" on individuals who violate its rules in their commercial transactions, is that not commercial regulation by another name?


    by Michael Wolraich on Fri, 06/29/2012 - 2:41pm

    Yes, I think that's basically right.


    by Dan Kervick on Fri, 06/29/2012 - 2:47pm

    I think much has been written about this decision, and many of us have offered parades of horribles about what the decision could mean. 


    by Bruce Levine on Sat, 06/30/2012 - 9:04am

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