There was a reason conservatives once supported the individual mandate

March 31, 2012

Of all the arguments being waged over the Affordable Care Act — or, as the Obama campaign now likes to refer to it, “Obamacare” — the one dominating the Supreme Court this week is perhaps the most conceptually trivial.


If the individual mandate goes, the government is going to put its hands all over your health care. (Alex Wong/GETTY IMAGES)

• Single payer: The federal government increases income taxes and, in return, guarantees everyone government-provided health-care insurance. There is no option to opt out of the taxes. This is how most of Medicare works, though the insurance kicks in only after you turn 65.

• Late-enrollment penalty: The single-payer approach only holds for “most of” Medicare because the Medicare Prescription Drug Benefit works a bit differently. For every month that you don’t enroll after becoming eligible at age 65, your premium rises by one percentage point.

• Tax credits: Under various health-care proposals — including the plan of Rep.Paul Ryan (R-Wis.) — the tax code is changed to give families a tax credit for purchasing private health insurance. Families that choose to go without insurance, or simply can’t afford it, would not receive the tax credit.

All of these plans share the same basic approach: They impose a financial penalty, either before or after the fact, on those who forgo health insurance. Single payer does it through taxes, Medicare Part D through premiums and Ryan’s plan through tax credits.

Now consider the individual mandate. Here’s how it works: Starting in 2016, those who don’t carry insurance will be annually assessed a fine of $695 or 2.5 percent of their income, whichever is higher.

Skeptics of government should clearly prefer the individual mandate to single payer. In fact, the individual mandate was developed by conservative economist Mark Pauly as an alternative to single payer. “We did it because we were concerned about the specter of single-payer insurance, which isn’t market-oriented, and we didn’t think was a good idea,” Pauly told me last year. In the 1990s, the individual mandate was also the Republican counterproposal to President Bill Clinton’s health-care bill, and in 2005, it was the centerpiece of Massachusetts Gov. Mitt Romney’s health-care reforms.

The Medicare Part D model doesn’t really work as an alternative to the individual mandate because it requires the federal government to set the cost of premiums. That’s possible with the over-65 set, because the government controls the market. To import that idea to the under-65 market, however, would require vastly more governmental intrusion into the health-care space.

The tax credit, meanwhile, is essentially indistinguishable from the mandate. Ryan’s plan offers a $2,300 refundable tax credit to individuals and a $5,700 credit to families who purchase private health insurance. Of course, tax credits aren’t free. In effect, what Ryan’s plan does is raise taxes and/or cut services by the cost of his credit and then rebate the difference to everyone who signs up for health insurance. It’s essentially a roundabout version of the individual mandate, which directly taxes people who don’t buy health insurance in the first place.

“It’s the same,” says William Gale, director of the Tax Policy Center. “The economics of saying you get a credit if you buy insurance and you don’t if you don’t are not different than the economics of saying you pay a penalty if you don’t buy insurance and you don’t if you do.”

Interestingly, Ryan’s plan imposes, if anything, a harsher penalty on those who don’t purchase health insurance. Ryan’s tax credit is far larger than the individual mandate’s penalty, and much easier to enforce. Under Ryan’s plan, if you don’t purchase insurance, you don’t get the credit. End of story. Conversely, the Affordable Care Act doesn’t include an actual enforcement mechanism for the individual mandate. If you refuse to pay it, the IRS can’t throw you in jail, dock your wages or really do anything at all.

This leads to one of the secrets of Obamacare: Perhaps the best deal in the bill is to pay the mandate penalty year after year and only purchase insurance once you get sick. To knowingly free ride, in other words. In that scenario, the mandate acts as an option for purchasing insurance at a low price when you need it. For that reason, when health-policy experts worry about the mandate, they don’t worry that it is too coercive. They worry that it isn’t coercive enough.

The mandate is considered more effective than tax credits because people seem more inclined to take action to avoid penalties than to receive benefits. That’s worked extremely well in Massachusetts, for instance, where there’s been almost no free-rider problem at all. So while it’s not different as a matter of economics, it’s a bit different as a matter of behavioral economics. In that way, the mandate does a little more to solve the free-rider problem with a little less action from the government.

Randy Barnett, a conservative law professor at Georgetown University, agrees that there’s some similarity between the two approaches. But he warns that that doesn’t make them legally equivalent. “Just because the government does have the power to do X, doesn’t mean they have the power to do Y, even if Y has the same effect as X,” he says. “There’s no constitutional principle like that.”

Although that’s true, it also leaves us in a peculiar spot. The constitutional argument over Obamacare is a dispute over a technicality. We agree that it’s constitutional for the government to intervene far more aggressively in the market. We agree that it’s constitutional for it to intervene in an almost identical, albeit slightly more roundabout, manner. We’re just not sure if the government needs to call the individual mandate a “tax” rather than “a penalty,” or perhaps structure it as a tax credit. As Pauly puts it, “This seems to me to be angelic pinhead density arguments about whether it’s a payment to do something or not to do something.”

Of course, this battle isn’t really about the constitutionality of the individual mandate. Members of the Republican Party didn’t express concerns that the individual mandate might be an unconstitutional assault on liberty when they devised the idea in the late 1980s, or when they wielded it against the Clinton White House in the 1990s, or when it was passed into law in Massachusetts in the mid-2000s. Indeed, Sen. Jim DeMint (S.C.), arguably the most conservative Republican in the Senate, touted Romney's reforms as a model for the nation. Only after the mandate became the centerpiece of the Democrats’ health-care bill did its constitutionality suddenly become an issue.

The real fight is over whether the Affordable Care Act should exist at all. Republicans lost that battle in Congress, where they lacked a majority in 2010. Now they hope to win it in the Supreme Court, where they hold a one-vote advantage. The argument against the individual mandate is a pretext for overturning Obamacare. But it’s a pretext that could set a very peculiar precedent.

If the mandate falls, future politicians, who will still need to fix the health-care system and address the free-rider problem, will be left with the option of either moving toward a single-payer system or offering incredibly large, expensive tax credits in order to persuade people to do things they don’t otherwise want to do. That is to say, in the name of liberty, Republicans and their allies on the Supreme Court will have guaranteed a future with much more government intrusion in the health-care marketplace.

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