By James Kwak
So the new Republican argument (which Mitt Romney was against before he was in favor of it) is that the individual mandate is an oppressive tax on the middle class. Cute, isn’t it, adopting John Roberts’s argument?
First of all, there’s the little matter that the word “tax” in legal doctrine means something different from the word “tax” in ordinary English. And there’s nothing wrong with that. Plenty of words have precise legal meanings that would be foreign to ordinary English speakers, like “negligent,” “reckless,” “material,” and so on, and billions of dollars turn on those precise legal meanings. But that’s not going to sway many people, so let’s go to the numbers.
If you get health insurance through your employer, the individual mandate doesn’t apply to you. There’s no chance you’ll pay the penalty, so the amount of the “tax” is exactly zero.
If you get health insurance from the government (primarily Medicare or Medicaid), the same thing applies. Your tax: zero.
If you already buy health insurance in the individual market, you can continue buying insurance the same way. The main change is that prices will probably come down (or at least grow more slowly) because of transparent competition in the insurance exchanges. (Curious? Check out what we have in Massachusetts, thanks to RomneyCare.) Your tax: zero.
All right, that covers more than eighty percent of you. What if you’re among the roughly 50 million Americans who are currently uninsured?
The typical uninsured household is a family of three that makes between $25,000 and $50,000 per year, probably around $35,000 (see Table 8). If you are a single parent with two children under eighteen, your penalty for not buying insurance is $1,390.
But: Because your household income is less than 200 percent of the applicable federal poverty level, you also receive a premium credit. At most, you will have to pay 6.3 percent of your income on health insurance, or $2,205. (In addition, you get a 13 percent reduction in the amount of cost sharing under your plan.) So you get to buy a family plan, which would ordinarily cost around $12,000, for just $2,205. That’s a benefit of $10,000.
So here you have a law that offers you $10,000 to buy health insurance (or, put another way, gives you a discount of more than 80 percent), but says that if you decline to buy it you’ll have to pay a penalty of $1,390. You can call that $1,390 a tax if you want, but the real question is: does the law make you better off than you were before? Unless most uninsured families like being uninsured, it’s pretty clear that it does make them better off.
(For a broader analysis of who is subject to the individual mandate, see the simulations by Jonathan Gruber. The answer: almost no one.)
In short: Very few people are even theoretically subject to the tax, and most of them are made much better off by the law, since they are transfer beneficiaries.
How can this be? How can a law make everyone better off? Well, it doesn’t. There is a tax-and-transfer element to the Affordable Care Act. The main people who are paying more are the rich (because of a Medicare payroll tax surcharge) and those with good health plans (because of the excise tax on “Cadillac plans”). In addition, the new spending is financed in part by reductions in Medicare spending; those reductions may or may not result in reduced availability of care for Medicare beneficiaries.
The Affordable Care Act is not painless, and there are definitely taxes involved. But the individual mandate “tax” is not one of them.
The Baseline Scenario 
Are there any additional taxes on employers to make the law work?
Social Security passed constitutional muster, primarily because the payments were deemed taxes. The money went into the Treasury’s general fund, like all other taxes.
And, people could not tie their contributions to specific benefits, thus promoting the general welfare.
With the ACA, the taxes are primarily for the welfare of for-profit health insurers, paid in the form of subsidies for their very expensive insurance.
Since when did insurers equate with the general welfare?
Don Levit
I am for the ACA, but please explain: if a family makes 25k/yr, and they have to cough up even 1.3k, that is painful. Is it not?
What does the Heritage Foundation say about those people?
How does Mass deal with it?
$1,300 on a planned basis is a lot less painful then requiring surgery or drugs on an unplanned basis. And it has the desired benefit of trying to head off longer acting chronic conditions like diabetes or heart disease. Basically the logic of why insurance is good for people. You pay a little on a regular basis to avoid a big shock if the unlikely happens. I live in SE Tennessee – and boy I’m glad I have house insurance. Either I’d pay $12k out of pocket for a new roof (tornado damage), or I’d be happy to pay ~$1k a year for home insurance.
Frankly, the illogical position of conservatives against the basics economics of insurance is baffling to me. The balance of known present payments against the unknown probability of a future event of unknowable magnitude is exactly what insurance is for. Somehow conservatives seam to think that everybody has perfect for-knowledge of their future medical conditions. Just mind-boggling.
Healthcare costs in Mass are among the highest in the nation; trust me, it’s not any better here. Any argument about the U.S. healthcare system that does not discuss a public option or single-payer system is, in my view, nearly worthless and a detriment to any progress in our political discussion. Bickering over these empty partisan claims is stepping squarely into the horseshit that Washington and healthcare lobbyists have laid before our feet. Time to get away from Capitol Hill for awhile, Mr. Kwak.
There is no DATA based on scientific rigor to analyze to ascertain what the real health care needs are for the USA population. So this is all made-up financial extraction, rent-seeking crap invented by FOR PROFIT health insurance companies. If “rich” people end up actually paying in something to play in the extraction game, so what?
When I was in my 20s, I remember having catastrophic health insurance that was very affordable that I purchased from a NON PROFIT state insurance company. I was stunned when they got bought out and became for-profit and sent me the bill for the same coverage. The cost of the new bill was almost exactly the amount that I had spent on health care the year before out of pocket. To participate in the plan, at that time, meant that I could not afford to have ANY of the basic health care that I needed, and nothing as insurance against something catastrophic.
Time to add up all the taxes whittling away at the 25% of total income people have left after the other big taxes are taken out and the cost of some kind of housing is taken out. Loved the recent story of that wall of the Brooklyn Brownstone just falling away in the middle of the night to reveal all those room mates huddled together trying to afford the rent for that dump….
When is perpetual war in the Middle East going to get cheaper for the poor?
Mr. Romney has never let the truth stand in the way of … well, anything.
Health insurance is not a “benefit” unless 1) the individual WANTS to purchase the crappy health insurance and 2) he gets something out of it — like health care, which requires deductibles and co-pays.
If someone is mandated to purchase something that he would not otherwise purchase, I call that a tax, not a benefit. He will have less discretionary income. He still may not receive any health care unless he can cough up substantial deductibles and co-pays. Meanwhile, the insurance corporations will have more income. It’s a transfer of wealth from the working class to the corporations.
Your analysis neglected to mention that many employers will find it cheaper to pay the fine rather than provide health care. Perhaps we could call that a “benefit” to employers, if it reduces their expenses ? But it’s certainly no benefit to the employee.
No, I do not want health insurance, I want health CARE. I want health care to be a right, as it is in Cuba. It is ridiculous that Cuba can have a better health care system than the US.
@Ian: The problem is healthcare insurance vs home insurance isn’t the same. Generally if one has a larger square foot home that has an expensive ceramic roof you’d have to pay a bit more than that $1K/year home insurance. But if one is a smoker and eat Cheetos everyday, they can expect to pay the same amount than their co-worker in the next cubicle over. This is one of the flaws of health care insurance.
I liked this blog better before you drank the partisan koolaid.
Um, the person does receive CARE for their money Dan Lynch, and lest it need be pointing out, access to health care is generally appreciated by most sentient beings. In some ways, the mandate can be thought of as a discounted health care premium, because with garunteed issue and community rating, they can wait until they are sick to sign up for insurance. Which frankly is a form of insurance.
To the commenter that said health care costs are not going to come down because they haven’t in MA, you should know the ACA has much more by way of cost control than Romneycare did, including several payment reforms, record keeping guidelines and reforms of Medicare to bring it closer into line with single payer systems around the world (the payment advisory board, eliminating wasteful Medicare advantage subsidies, etc.). Some of these hold out real efficiency promise while others should help offset the increased health care access to the poor and working poor. This is not Romneycare. More needs to be done, but establishing a workable system is the first and most difficult step.
Finally for Annie, the insurance companies fought the ACA tooth and nail because it is a major step on the road to turning them into regulated utilities, and more to the point, ending the wild west of abuses they currently can get away with, including provisions that dictate the maximum profit margins they are allowed to sustain.
Switzerland has shown you can get there with private insurance companies. There is no viable reason to hold out for the perfect when doing so is the enemy of the good…
There is no mandate in the PPACA. Section 5000 contains the language that is being confused for such. It doesn’t have the word mandate in it. Look up the word mandate, and you will see it has no “or” clause. Section 5000 sets up options – buy insurance, or a shared responsibility payment will be collected by the IRS.
For those that think that the PPACA is a gift to insurance companies, what kind of gift puts a cap on profit and overhead? Larger insurance companies are required to spend 85%, and smaller – 80%, of premiums on health care delivery. Sec. Sebelius is clarifying what constitutes health care delivery, and an article in Dec pointed out that she isn’t playing nice to the insurance industry. In addition, it’s reported that the insurance companies will have to compete with clear standardized policies in exchanges. Sounds like a good market setting. They might try screwing their customers with denial of service findings, but if they do, customers will have a good source of information to choose another company. And the PPACA eliminating the prior condition excuse eliminates the backbone of that excuse. The size of insurance companies should impact their buying power, giving larger ones an advantage with which they can compete, or pay their profit creators more.
It has been said that insurance companies won’t choose to play in this game, and some are said to be getting out of the health insurance business. If it plays out such, we will end up with Medicare for All. Since such a system would have the greatest buying power, can pool outcomes information for optimizing service, eliminates the overhead of dealing with 100s of insurance companies requirements for the doctors, and eliminates the insurance companies profit, and a great deal of overhead, it is the way to go.
Surplus premiums are to be refunded to the buyers.
I’m surprised someone on this blog would think that businesses would pay the penalty for not insuring, and cancel their profit creators’ fringe benefit. Employer paid insurance is a profit maker for the employer, and is subsidized by the government. It keeps employers from having to replace profit creators with lower profit creators, and train them, at least till they come up to speed.
clueless intellectuall
this is an emotional argument; you couldn’tsell liferafts on the titanic
rather then this loosing argument, focus on dead kids cause parents couldn’t put em on insurance
I’m surprised that no one has brought up the health insurance discount. In my experience, when a doctor has to submit a claim to a health insurance company, that health insurance company bases the amount they will pay on a ‘usual and customary’ table. So, if you pay out-of-pocket for health care, you simply receive the bill from the doctor, and have no way to discount the amount using the power of the group health plan. Therefore, the health care insurance is as much a discount on the otherwise full price of the doctor, as much as it is available for catastrophic expenses, especially if you have a high deductible. In other words, that family of four would pay much more than $2200/year for health care if they had to pay directly to a doctor, than if that health care were subject to a ‘usual and customary’ table.
Socialised medicine does indeed represent a tax on society, and the middle-poor class will be most penalised. ObamaCare has been marketed as a tax savings programme. But not even the village idiots believe that. The machinations of the US government (whatever branch) are as pathetic as they are transparent. ObamaCare was engineered by corporations; Guess which ones.
The Republicans are just exacting their pound of flesh: Obama got his bill, but it only survived by being technically a tax, and so they’re going to hit Obama for passing a tax. That’s how politics works.
You can argue that it’s not really a tax, but that amounts to arguing that it really shouldn’t fall under Congress’ taxing power. In that case, the ACA survived based on a technicality and is really unconstitutional.
Personally I think the whole thing is silly, since instrumental values like “is constitutional” and “is technically a tax” are pretty secondary to my terminal value “is a good law”.
How can the RETHUGLICANS hit Obama up on a tax issue, when Willard Romney passed very similar legislation in Mass?
This whole thing is going to bankrup society. Young people are going to be coerced into paying into a system when most can’t afford their own apartments or pay their student loans if they can even snag a decent job at an.age where they’re years away from health problems. My premiums for a lousy policy is $13,904. When employers drop coverage, there’s.no.more disposable income for anyone. Basically, one is taxed by merely existing. When I was a kid, this was a free country. We ought to just pay Doctors Without Borders to set up tents in a park. We’d be better off.
Quick: without thinking, whatis your immediate, visceral reaction to the idea that the Fed Gov’t can compel you to buy something ?
If you rxn is other then loathing and disgust, you are either 4 std deviations off the norm, or lying (sorry to be blunt)
The point is, however much the mandate is a tax or a penalty, a it is a how many economists can dance on the head of a pin argument, and b, since it ignores the emotional component, it is always a looser;
you have to understand psychology: when you mention something unpleasant, facts don’t help
so,what is to be done
if u think obamney care is a good idea, NEVER, EVER EVERTALK ABOUT TH EMANDATE
instead talkabout all the positive wonderful things that are in obama care, like no pre exisitng condition ban.
again, this is an emotional argument; if you care about persuading people, you have to inderstand how they think
I’m a molecular biologists, and I assume academic economics is similar: there are some superstars from MIT or wherever, and when they come to town to give a seminair, the room is packed.and one thing people often say, wow, he gave a great talk, by which they mean part data and part performance
learn from this
I guess I’m angry cause this blog post of yours is so counter productvie, and you just don’t seem to get it
when you have a thing that people don’t like, like cockroaches, it doesn’t help to say that the house is clean – just bringing the subject up is bad
regards,ezra abrams
@myron tingle, “…We ought to just pay Doctors Without Borders to set up tents in a park. We’d be better off….”
Believe it or not, there are some parts in the USA where this activity was considered “illegal” and was not allowed to continue. Something about it being an “ism” of some kind or another…so we’re not even a third world – we’re in some 4th level of Dante’s hell – monkey brains on imagination follow one rule:
More misery for others = more $$$$ for ME ME ME
Dan Lynch said (asserts) “It is ridiculous that Cuba can have a better health care system than the US.”
Why do you consider this ridiculous? Will you defend your assertion?.. and please be precise.
There was once a time, (not on this planet) that you had to pay for your teeth. You paid and someone somewhere would teach you to properly maintain them, it helped keep the bills down, and your health up. But somewhere along the way, it was deemed that humans should be held hostage from their teeth. And many a kid strayed into a dangerous land, becoming a suffering adult who then wanted revenge from cruel world where kids have kids and are still expected to meet the status quo of the earlier educated kids of which whom they compete for jobs and money. And if you become that “A” student, you are now entitled to this world of plenty until your dying day. Just exactly where we went wrong is a complete mystery, it was to easy to be mislead, and run with it to the cliff.
Thought you’d be interested. I just recorded a video and song on YouTube that satirizes the huge cost of the Affordable Care Act, entitled “I Don’t Care I’ve Got Obamacare”. You can listen to it at http://youtu.be/x1KfhLcKcTU.
keep the day job…lol
@filbt – FOR PROFIT health insurance companies inserted themselves in between the human being providing the health care and the person needing it. That’s what happened. Duh.
It’s not even about that today, though. It’s about tapping in to that big river of daily transactions (health needs for life maintenance) to continue to provide perpetual-war bullets for the Welfare Queen in Middle East.
The tooth filing is a bullet.
Respectfully, I submit that Janes misses the point of the disaster of the Supreme Court decision on health care. Roberts essentially affirmed the power of Congress to tax us to death without appropriate Congressional procedure and without recourse through the Anti-Injunction Act. Further, he one handedly granted Congress the power to force our behavior or be penalized by tax. Declaration of Independence be damned.
Roberts also affirmed his own right to draft legislation that Congress and the Administration did not intend. In that vein, I believe he exceeded his Consitutional authority. He could have struck down the individual mandate as an illegally passed hidden tax, upheld the rest of the law, and sent it back to Congress to fix it, if the law could still pass muster under its true colors. Instead he stepped in as a virtual legislator to cast a deciding and unlawful vote.
With the vast amount of monetary resources already provided to the federal government, why wasn’t “health care for all” fit into the existing budget without a tax raise? Why wasn’t the budget proposed to be cut in other areas so that this health care could be afforded without out of pocket expense by people of modest means?
James, $2000 or 6% of income is an enormous amount of money to a family making under $50K a year. You may be very educated, but with your presumably comfortable income and your McKinsey and Company background, you are totally out of touch.
To the editor: I prefer on the above post that my name be printed instead of my e-mail — could you please substitute and thank you.
Sorry bout the editor, i’ll take care of that pronto, and verona, as the movie of the 1950’s stated, “this was the end”. Now if you missed the bus or the bus missed you, that presumed timer is long gone.
Hi Ezra Adams,
Thanks for the post on Selling-It-With-Psychology. I appreciate the alien perspective lecture – humanoids are unable to remove themselves from the gut reaction of the reptilian brain stem when they are being threatened with extinction. Drugs help calm them down, so keep up the good biology work.
We must keep the animals calm as we herd them to….the next pump and dump…?
So where is the new Jonestown? I am now your follower since you hit me just right with the psychology…and the narcotics.
Thanks,
Annie
Since, RomneyCare is for Massachusetts as ObamaCare will be rest of the country. I am a resident of Massachusetts and RomneyCare had zero effect on me; since I have been covered by my employer. However, if I was laid off and had to assume my former employer’s insurance through COBRA we are talking about at least 1k/mo going forward. With RomneyCare I can go to the Healthcare exchanges and get coverage for far less given my reduce circumstances. How is that a bad thing? If the government truly wants to socialize medicine than expand Medicare for everyone. With ObamaCare, Medicare takes subscribers nobody wants — elderly, disabled, the sick and people in dire circumstances. Do really think these folks can pay their medical expenses? Why do you think these businesses are charities? Obviously, they pass on the expenses. As a recent Oregon Medicare study has proved — these are folks are better served by having Medicare coverage than having no coverage (http://web.mit.edu/newsoffice/2011/medicaid-study-0708.html ). Even with all it flaws some medical insurance is far better than no insurance. Maybe, it will stop medical bankruptcy and get this country on the road towards promoting good health. GOP should stop looking at it as these people get something for nothing and more of a medical crisis that needs to remedied. Unless, GOPs “Repeal and Replace” mantra can actually come up with a better system. It seems we need to stick with ObamaCare.
@Longtooth asked:
>>”Dan Lynch said (asserts) “It is ridiculous that Cuba can have a better
>>health care system than the US.”
>>
>>Why do you consider this ridiculous? Will you defend your assertion?..
>>and please be precise.”
Well, I would guess because Cuba has a per capita GDP of 9,900 vs. 47,200 for the US.
@verona – great post! For every action there is an opposite and equal-force reaction. We’re being pushed to fight for our own inherent goodness!
In general, the Supreme Court is proving, once again, that We the People have a much higher awareness and knowledge of “justice” than the Judges. If we weren’t better than them, they wouldn’t be needing to exert so much “legal” pressure on us to worship their “ism”.
IMPEACH SCALIA< the FASCIST JURIST.
Reblogged this on The Pragmatic Theory and commented:
It’s all about the net benefit.
@ ezra — You write very poorly for someone with a graduate degree.
Maybe the base problem IS education after all.
James
What happened to you? You used to have such a cutting mind. Now you are reciting model predictions by partisans as if they are forgone conclusions. How great it would be if these forcasts were true. The Feds rarely get the spending right (ever?) on the big stuff. Why now?
Mike Rulle
so once the insurance companies are forced to only keep 20 percent they will have an incentive to pay for everything so that the gross numbers climb and they make more money.
Basically they are getting a 15-20 percent managment fee for handling the paperwork.
So they won’t want the bills low they will want them high.
20 percent of 20 billion payout is twice what 20 percent of 10 billion payout is…
Also… if they are now going to subsidize a family of four to the tune of 10k why should I as a small business owner not simply drop the 12k policy, give my employee a 1300 dollar a year raise pay the 300 dollar fine for a net savings of ten grand or so?
Your example needs updating
U.S. Median Annual Wage in 2012 is $26,364
http://www.huffingtonpost.com/2011/10/20/us-incomes-falling-as-optimism-reaches-10-year-low_n_1022118.html