July 1, 2012
Is the Health Care Law's "Mandate" Really a Tax?
Is the Health Care Law's "Mandate" Really a Tax?—Posner
I agree with Becker (and with the Supreme Court) that the "mandate" in the health care law—the requirement that people who can afford to buy health insurance must do so on pain of having to pay a "penalty" if they do not—is within Congress's taxing power under Article I of the U.S. Constitution, the article establishing the legislative branch of the federal government. Article I among other things authorizes Congress "to lay and collect taxes, duties, imposts and excises." The fact that Congress called the mandate exaction a penalty rather than a tax is of no significance. It was done simply because "tax" has become a dirty word in American political discourse.
It is true that the main reason for taxes is to generate revenue for the government, and the mandate exaction is not a revenue tax but a regulatory tax. But regulatory taxes—a tax on emission of pollutants, for example—are common; their aim is not to generate revenue but to discourage undesirable practices, though they generate some revenue because some of the taxpayers find the tax less onerous that discontinuing the taxed activity. The "duties, imposts, and excises" to which Article I refers would include tariffs, which are often intended to discourage imports rather than to raise revenue. It is true that from an economic standpoint a regulatory tax may not seem sharply different from a fine (for illegal parking, for example), which is not a tax within the meaning of Article I (if it were, Congress would have virtually unlimited regulatory power, rather than just the enumerated powers set forth in Article I). But there is a significant difference. Fines are imposed on activities that are forbidden, rather than merely sought to be discouraged or reduced. Even when the fine is light, as in the case of most parking tickets, repeated violations will result eventually in severe sanctions, so the violator really doesn't have an option to pay rather than comply. Fees for specific services, such as for a passport or a driver's license, are also distinguishable from regulatory taxes, because fees are in exchange for specific government services, whereas taxes are not usually paid in exchange for specific services.
So the mandate exaction, though called a penalty, is in fact a regulatory tax and therefore within Congress's power. Whether it's set at a rate that will actually induce many people who currently lack health insurance to buy health insurance is a separate question, and still a third question is whether if so the result of adding to the number of Americans who have health insurance will be good for society as a whole. The idea behind the mandate that the tax is designed to enforce is that the uninsured are free riders. They tend to be young and therefore on average in good health, and by opting out of the insurance pool they increase the cost of insurance to the people who remain in the pool. In addition, when they do get sick, they tend to visit hospital emergency rooms for diagnosis and treatment, and emergency rooms tend to be very expensive. The hospitals send the uninsured whom they treat stiff bills, but often the bills are not paid.
If the mandate succeeds in inducing many uninsured to buy health insurance, this should reduce the health insurance premiums paid (either directly or in the form of lower wages because their employer is paying the premiums) by those who already have health insurance. But this will just be a transfer of wealth from one group of people to another. More important from an overall economic standpoint, a reduction in the number of uninsured will increase aggregate health costs because uninsured people demand and receive less health care, on average, than the insured. The study by Hadley and coauthors that Becker cites estimates that providing health insurance (whether private or, in the form of Medicaid or Medicare, public) to all the currently uninsured would increase total health care expenditures in the United States by 5.1 percent a year, a substantial increase (given the size of the health care industry) equivalent to 0.8 percent of GDP. (Their study was conducted four years ago; I don't know what the current best estimate would be.)
It cannot be assumed that the cost increase would be offset by a reduction in medical expenses attributable to the better health that people who by virtue of having health insurance can expect to have because they don't skimp on medical screening and treatment. Better health care will increase longevity, but that means more old people, who consume a disproportionate amount of medical care as it is.
The Health Care Mandate: If it seems Like a Tax it is a Tax-Becker
In the past I supported a health care mandate that would require everyone to have minimal insurance against catastrophic health events, such as cancers, that are very expensive to treat. Catastrophic insurance alone is pretty cheap since they are rare for younger persons, the main ones not covered either by private insurance, Medicare or Medicaid. Since the great majority of individuals and families could afford to pay for such catastrophic coverage, only the real poor need have this coverage subsidized by the federal government.
The argument I gave in support of such a mandate is that individuals without insurance who develop a catastrophic medical condition would impose significant burdens on those with insurance by raising the cost of insurance to everyone. But research (see the Urban Institute's report in 2008 by Hadley, Holahan, Coughlin, and Miller, "Covering the Uninsured in 2008: Current Costs, Sources of Payment, and Incremental Costs") convinced me that while in principle this is a concern, the medical care provided to the many uninsured in America has had only a small effect on the cost of private health insurance.These authors find that private insurance premiums were raised by no more than 1.7% because of the shifting of the costs of the uninsured to private insurers. Partly for this reason I have changed my position on the health care mandate, and no longer believe it is worth the cost of getting the government involved in mandating health insurance for everyone.
The form the health care mandate takes in the Affordable Care Act also influenced my change in position on these mandates. This Act does not simply mandate catastrophic insurance coverage, but mandates a far more extensive coverage that can hardly be justified by the need to protect individuals against the cost of serious illnesses. Moreover, instead of just subsidizing the poor, this Act also subsidizes individuals and families with incomes that are several times above the poverty line. As frequently happens in the political implementation of possibly good policies, the actual mandate and many other programs under this Act are likely to do more harm than good.
I am not a lawyer, and cannot judge the constitutionality of the mandate or other aspects of the Affordable Care Act. Of course, many programs are perfectly constitutional even if they do a great deal of damage. Without directly discussing the constitutionality of the mandate I can discuss whether combining the health care mandate with a penalty for those who do not participate can legitimately be called a tax, as argued by Justice Roberts in the majority opinion.
Clearly, the concept of a tax includes compulsory contributions to government revenues, such as levies on personal incomes, earnings (such as social security), or corporate profits. However, certain levies that are called taxes contribute to government revenues, but their main purpose may be to affect certain types of behavior and activities. Examples include taxes on cigarettes that aim to discourage smoking, or taxes on carbon emissions (Pigovian taxes) levied to reduce the greenhouse gases that enter the atmosphere.
Other levies that change behavior are not usually called taxes, although they have the same kind of impact on behavior as taxes. For example, drivers that are caught exceeding the speed limit are "fined", although one could equally well say they are "taxed" for exceeding speed limits. The main purpose of these fines may be to encourage drivers to obey speed limits, although the revenue from the fines may also be part of the purpose, as in "speed traps". Following the same logic, one can then say that consumers who buy cigarettes are in effect fined for each cigarette they buy, where the "fine" is the size of the government levy imposed on each cigarette consumed.
Consider in this context the health care mandate, which involves a financial penalty for persons who do not buy the mandated health care insurance. Without any stretch in language, one can say they would be "fined" for not obeying the mandate. But then following the logic of the cigarette tax and speedy driving examples, one could also legitimately say that individuals would be "taxed" if they do not buy the mandated health package.
The Affordable Care Act has many very bad features, including the health care mandate. But if the constitutionality of this Act depends on whether the financial penalty for not buying the mandated health care package is a "tax", I go with Justice Roberts, and against the dissenting opinion by Justices Scalia, Kennedy, Thomas, and Alito, in concluding that this penalty can indeed be considered a "tax".