“Pinhead Density Arguments”: There Was A Reason Conservatives Once Supported The Individual Mandate
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.
The individual mandate requires consumers to purchase health insurance in order to eliminate the problem of free riders — people who don’t purchase insurance until they get sick or injured or those who never purchase insurance and end up passing on to the rest of us the costs of care they can’t afford. Detractors argue that the mandate unconstitutionally infringes on personal liberty by forcing Americans to purchase health insurance. But compare it to three ways of addressing the free- rider problem in health care that are clearly, indisputably, constitutional:
• 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.
By: Ezra Klein, The Washington Post, March 31, 2012
Rick Santorum Cashes In On The Very Tax Credit He Claims To Hate
Rick Santorum regularly knocks the stimulus bill that the Democratic Congress passed, and President Obama signed into law, back in early 2009. The American Recovery and Reinvestment Act “cost American jobs,” he told CNN last July. But that didn’t stop Santorum from claiming a tax credit for home efficiency funded through the stimulus plan that year.
According to his 2009 tax form, which was released last week, Santorum claimed a $3,151 expenditure on new exterior windows and skylights, one of the “qualified energy efficiency improvements” for homes that was granted a tax credit through the stimulus bill. The stimulus bill revived a tax credit that had expired at the end of 2007 and increased the amount of money homeowners could claim. This allowed the Santorum family to knock $945 off their taxes.
The purpose of the tax credit was to help homeowners save money by using less energy, while at the some time generating fewer emissions. But the efficient choices can often cost more upfront—hence the desire to create a tax credit to incentivize that kind of expensive upgrade. The measure was also intended to benefit the manufacturing and construction industries by creating more opportunities for them to make and install the windows and other efficient products.
Santorum has made attacking the Obama administration’s energy and environmental policies a prime plank in his platform, implying just last week that the president is some kind of dirt-worshiping hippie aligned with “radical environmentalists.” He’s also used his position on the subject as a way to distance himself from rival Mitt Romney, who has at times shown sympathy for protecting the environment.
“Who would be the better person to go after the Obama administration on trying to control the energy and manufacturing sector of our economy and trying to dictate to you what lights to turn on and what car to drive?” Santorum told the crowd at the Conservative Political Action Conference earlier this month. “Would it be someone who bought into man-made global warming and imposed the first carbon cap in the state of Massachusetts, the first state to do so in the country?”
Despite the major boost that the stimulus bill gave to the manufacturing sector, Santorum has accused Obama of “talk[ing] about how he’s going to help manufacturing, after he systematically destroyed it.” The stimulus is also one of the many things Santorum targets when he criticizes Obama’s “radical agenda.” “We’re not like the liberals. Every time we see a problem, we don’t have to find a government program to fix it,” Santorum said on the campaign trail in Michigan this week. “We encourage others to fix it without the government’s heavy hand.”
Santorum has also said he thinks that “all subsidies to energy should be eliminated.” He doesn’t, however, seem to have a great grasp on what those subsidies are, as he also claims that “there are not a lot of them” to eliminate—when in fact we provide about $20 billion worth every year. Nor did he comment on whether the tax credit he claimed just a few years ago would qualify as one.
By: Kate Sheppard, Mother Jones, February 24, 2012
Conservative Legal Luminaries Concede: The Individual Mandate Is No Unique Threat To Freedom, After All
As summarized one month ago in a post here on Jonathan Chait’s blog, conservatives reacted with fury to an article I wrote for Slate in which I pointed out that two major components of House Budget Committee Chair Paul Ryan’s Roadmap for America’s Future closely resemble the much-demonized “individual mandate” in the Affordable Care Act. In particular, I noted that the ACA provision requiring health insurance has precisely the same kind of impact on individual purchasing decisions as Ryan’s roadmap, and is, if anything, less coercive than the Roadmap proposal to provide a tax credit to individuals who purchase health insurance, as a replacement for the current exclusion from income of employer-sponsored health insurance. The ACA imposes a tax penalty on individuals who choose not to purchase health insurance. The Ryan Roadmap, on the other hand, provides a tax credit to individuals who choose to purchase health insurance—a technical distinction, I suggested, without an economic or other real-world difference.
National Review, the Weekly Standard, and Hot Air raised various objections to this point, which was seconded by Ezra Klein in the Washington Post and by Jonathan in TNR. But recent oral arguments before federal appeals courts hearing legal challenges to the ACA should quiet such protests once and for all. In these arguments, two of the most celebrated members of the Right’s legal elite acknowledged that there is no daylight between the ACA mandate-plus-penalty and a Ryan-type tax credit universally conceded to be constitutional.
The first instance of this occurred on June 1, when Sixth Circuit Judge Jeffrey Sutton, sitting on a three-judge panel in Cincinnati in a case brought by the conservative advocacy group Thomas More Law Center, floated the hypothetical idea of a tax credit alternative to the ACA approach. The Law Center’s attorney, Robert Muise, acknowledged that “you could provide a credit for health insurance, there’s no prohibition on that.” To which Judge Sutton responded:
You think it would be just as coercive to say to people, everybody pays the same additional tax, it’s a health care tax, everybody pays it and the only people that don’t pay it, i.e. get a credit, are those with insurance, you think that would be as coercive?
Muise contended that a tax credit was different because it encouraged activity—namely the purchase of health insurance—whereas the ACA provision penalized a “failure to act.” But Sutton didn’t buy it:
If that’s your view, then just pay the penalty, pay the penalty, don’t get insurance, don’t be forced to do anything, in that sense, if you think they’re equivalent, in that sense, no one is forced to do anything, because the economic incentives are the same in both settings, you can’t say the law requires you to buy it, the law just penalizes you if you don’t.
Judge Sutton is not the first person to observe that the ACA’s allegedly freedom-destroying mandate is operationally indistinguishable from commonplace tax incentive provisions. But, apart from having actual decisional authority on the matter, Sutton enters this space with formidable ideological and professional credentials. One of the first batch of appeals court nominees picked by President George W. Bush, Sutton, though only 42 years old, earned his front rank position as the energizer bunny of the Rehnquist Court’s late 1990’s drive to shrink Congress’ domestic regulatory authority in the name of “federalism.” As a lawyer, Sutton argued and won, usually by bitterly contested 5-4 margins, a raft of decisions striking or narrowing provisions of the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Violence Against Women Act, the Clean Water Act, and regulations implementing the 1964 Civil Rights Act, among others. He famously once told Legal Times, “I really believe in this federalism stuff.” Sutton’s professional standing was unquestioned; appointed by the Supreme Court in 2001 to represent a prison inmate, Sutton won a unanimous decision and unusually explicit praise from its author, Justice Ruth Ginsburg, for “his able representation.”
Of course, Sutton’s verbal acknowledgement that the ACA individual mandate is not uniquely coercive, emphatic though it appeared, is no guarantee that he will not strike down a law that Republican orthodoxy demonizes as a drastic expansion of federal power. Nevertheless, his on-the-record statement leaves the case against the ACA mandate resting at best on a hypertechnical foundation lacking in substance.
The second acknowledgement of the ACA mandate’s kinship with uncontroversial tax incentives occurred a week later in Atlanta, at the June 8 argument before a panel of the Eleventh Circuit Court of Appeals in the case against ACA brought by 26 Republican state attorneys general and governors. During the argument, the Republicans’ counsel, Paul Clement, attempted to sound a reasonable note. He said, “There’s lots of different ways that Congress could incentivize people to get to the exact same result. They could have passed a new tax and called it a tax, and then they could have given people a tax credit for paying for qualifying insurance.”
Again, Clement’s observation was not original. But in addition to being the Republican opponents’ lawyer, Clement also served—with universally acknowledged distinction—as George W. Bush’s Solicitor General. Recently, he made headlines by resigning his 7 figure-per-year partnership in the Atlanta-based firm, King & Spalding, when the firm precipitously withdrew from representing his client, the House of Representatives, to defend the federal Defense of Marriage Act, aka DOMA.
The significance of Clement’s functional equivalence concession was not lost on Eleventh Circuit Judge Stanley Marcus. Marcus, originally named a district judge by President Ronald Reagan and subsequently to his current appellate position by President Bill Clinton, drew a logical implication subtly different from Judge Sutton’s observation that the ACA mandate is not uniquely coercive, but one that is potentially even more troublesome for the ACA opponents’ case. “Isn’t that just another way,” he asked rhetorically:
“[O]f saying they [Congress] could have done what they did better? More efficaciously, more directly, and they regulated perhaps inefficaciously, maybe even foolishly, but if it’s rational, doesn’t my job stop at the water’s edge? Isn’t it for the legislative branch to make those kinds of calculations and determinations?”
No constitutional lawyer could mistake where Judge Marcus was heading. How is it possible, he was saying, for courts to dictate which of two methods Congress must choose to implement its constitutionally enumerated powers, when both methods generate “the exact same result?” Judicial micro-managing on such a granular level, Marcus knows, violates the fundamental, black-letter standard established nearly two centuries ago by Chief Justice John Marshall. In his iconic 1819 decision, McCulloch v. Maryland, Marshall broadly interpreted the constitutional grant of authority to Congress “to make all laws which shall be necessary and proper for carrying into execution” its enumerated powers: “Let the end be legitimate,” he wrote in words memorized by first-year law students, “let it be within the scope of the constitution, all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”
To be sure, no one who listened to this Eleventh Circuit argument could predict the panels’ outcome any more confidently than could those who heard the previous week’s Sixth Circuit argument. But these unequivocal statements, by two of conservativism’s most eminent legal luminaries, that the ACA individual mandate is not a unique threat to Americans’ liberty after all, surely drain much of the juice from opponents’ legal case, and, ultimately, from their political case as well.
By: Simon Lazarus, Public Policy Counsel to the National Senior Citizens Law Center, Guest Post, The New Republic, June 17, 2011
Paul Ryan Supported Payment Advisory Boards Before He Was Against Them
During his series of 19 town halls in Wisconsin several weeks ago, Rep. Paul Ryan (R-WI) repeatedly criticized President Obama’s Independent Payment Advisory Board (IPAB) for “rationing” care to seniors, cutting Medicare, and denying care to current retirees. The IPAB is a 15-member commissionthat would make recommendations for lowering Medicare spending to Congress if costs increase beyond a certain point. The reductions would go into effect unless Congress acts to stop them.
“[Obama’s] new health care law…puts a board in charge of cutting costs in Medicare,” Ryan told retirees at one town hall in Kenosha, Wisconsin in late April, arguing that the IPAB would “automatically put price controls in Medicare” and “diminish the quality of care for seniors.”
But as the Incidental Economist’s Don Taylor reports this morning, Ryan has previously introduced legislation that included a very similar board to control health care spending. In 2009, Ryan introduced the Patients’ Choice Act (PCA) which “proposed changing the tax treatment of private health insurance and providing everyone with a refundable tax credit with which to purchase insurance in exchanges” but also sought to establish “two governmental bodies to broadly apply cost effectiveness research in order to develop guidelines to govern the practice of, and payment for, medical care.” Taylor writes that “the bodies proposed in the PCA had more teeth, including provisions to allow for penalties for physicians who did not follow the guidelines, than does the Independent Payment Advisory Board (IPAB) that was passed as part of the Affordable Care Act.” Both the Health Services Commission and Forum for Quality and Effectiveness in Health Care was tasked with developing guidelines and standards for improving health quality and transparency and were afforded what the bill called “enforcement authority”:
(b) ENFORCEMENT AUTHORITY.—The Commissioners, in consultation with the Secretary of Health and Human Services, have the authority to make recommendations to the Secretary to enforce compliance of health care providers with the guidelines, standards, performance measures, and review criteria adopted under subsection(a). Such recommendations may include the following, with respect to a health care provider who is not in compliance with such guidelines, standards, measures, and criteria: (1) Exclusion from participation in Federal health care programs (as defined in section 1128B(f) of the Social Security Act (42 U.S.C.1320a–7b(f))).(2) Imposition of a civil money penalty on such provider
Like the IPAB, Ryan’s board is insulated from Congress and would have allowed true health care cost experts — the Forum for Quality and Effectiveness in Health Care even included 15 individuals, just like the IPAB although they do not appear to require Senate confirmation — to improve the cost effectiveness of the health care system. As Taylor observed back in 2009 when the board was first introduced, “any such effort will undoubtedly be called rationing by those wanting to kill it, and quality improvement and cost-effectiveness by those arguing for it. Whatever we call it, we must begin to look at inflation in the health care system generally and in Medicare in particular.” Little did we know that Ryan would be on both sides of that debate.
By: Igor Volsky, Think Progress, May 13, 2011
How Grover Norquist’s Pledge Blocks Real Deficit Cuts
Eli Lehrer has an incisive piece on this page about Tom Coburn’s “Gang of Six” tax proposals. I believe however that the proposals deserve a warmer endorsement than Eli offers.
An important cause of America’s long-term debt problem is the intellectual cul-de-sac into which Republicans have driven themselves. Republicans have accepted a total ban on any kind of tax increase as party orthodoxy. And they have submitted to the authority of Grover Norquist of Americans for Tax Reform to determine what constitutes a “tax increase.”
Norquist takes the view that any action that increases the revenue column of the federal government must be deemed a tax increase – and that such increases are only permissible if they are offset by an equivalent cut to the spending column.
The trouble is that a lot of federal spending – especially the spending done by Republicans – takes the form of tax remission.
The federal government offers a tax credit of up to $9,500 for the purchase of plug-in electric cars. How exactly is that different from writing a check to every plug-in buyer? Yet canceling this program would count as a tax increase under Grover Norquist’s test.
Adopt a child and you can qualify for a tax credit of up to $13,100. You can even get credit for the cost of meals and lodging while traveling in a foreign country to receive the child. You can say a lot of things about this measure. But is it a “tax cut”? Hardly.
Enrolled in college or university? You can deduct up to $4,000 of qualified tuition expenses.
Over 65? Or disabled? Adjusted gross taxable income of less than $17,500? Tax credit for you.
And so on. The point is not that these tax expenditures are all necessarily ill-advised. (It’s genuinely more expensive to be disabled, and public money to help the disabled cope with the costs imposed on them by nature or accident seems a reasonable response by a civilized society.) The point is: they are expenditures, disguised as tax cuts.
This point – so obvious with the smaller tax expenditures – is true also of many of the larger tax expenditures, even if familiarity blinds us to the fact. Mortgage interest deductibility and the tax exclusion of employer-provided fringe benefits: these are subsidies too, no less subsidies for being widely rather than narrowly used.
Yet on the Norquist system and by the Norquist rule, the US cannot address these subsidies contained in the tax code unless and until they are simultaneously matched exactly with other subsidies and benefits that happened to have been framed as outlays. Economically, the rule makes little sense. Politically, it has the job of making deficit reduction twice as difficult as it needs to be. With consequences that …. well let’s leave that for a second post.
By: David Frum, Frum Forum, April 25, 2011
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