Penalty vs. Mandate

Very good sentences from John Cochrane:

A mandate is a mandate, a law that everyone must have health insurance. If the minor penalty envisioned in the ACA isn’t sufficient (it’s not) to get people to buy health insurance, it was entirely within HHS power to find more effective means of enforcement…

They could have started by requiring proof of health insurance for getting a passport, student loan or grant, unemployment check, or any other interaction with the Federal Government. That was, according to the fawning New Yorker article on ObamaCare, already contemplated. Next, go to the point of sale: they could have required that delivery of any health service must include a check of health-insurance status and report to authorities. They could have used Medicare funds to force states to make proof of health insurance a requirement to get a driver’s license. In the end, yes, they could have sent inspectors around to check health insurance status and haul people off to jail. You think I’m kidding? They already send inspectors around to check immigration status and haul people off to jail…

A tax is only a tax. If you pay the tax, there is nothing else they can do to you. And taxes have to be approved by Congress, not just HHS. And there is no way Congress is going to vote in a $10,000 head tax for not having health insurance.

Full post worth reading.

Comments (5)

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  1. Alex says:

    With the way he describes it I think I’d rather have the tax then face some kind of fascist health insurace spot checking.

    Proof of health insurance to get a passport or loan, annoying and bureaucratic, but sure, I can go with it. Health insurance inspectors? No thanks.

  2. Ken says:

    Fascinating.

  3. Devon Herrick says:

    It’s been popular as of late for conservative analysts to beat up on Chief Justice Roberts. I don’t pretend to have advanced training in Constitutional Law, so it would be presumptuous of me to second guess Robert’s legal opinion. A majority of the Court voted that the individual mandate was an over-reach by Congress. I find it unfathomable that Roberts would then justify the mandate by reasoning that – even though the mandate was unconstitutional – the fine for not abiding to the mandate was constitutional. Since you could merely pay the fine (rather than having coverage) the mandate wasn’t unconstitutional because you have an option around it.

  4. John R. Graham says:

    Any economist should have sympathy for this point of view (which I wrote about myself in this blog long before the case went to the Supreme Court.) It is clearly, effectively, a tax. In the same way, a child tax credit is effectively a tax on not having children. Furthermore, it is (IMHO) pretty clearly an income tax, therefore authorized by the Constitution.

    However, I also think that words matter. If neither the Congress nor the President called it a tax, when they were given every opportunity to so so when the bill was debated, then I think it is wrong for the Court to re-write the law to call it a tax. As the minority dissent asserted, it is completely inappropriate for the judiciary to define a tax when the elected branches are afraid to do so.

    And I also think we need to bring behavioural economics into it. The labels and social sanction that go with the mandate might be important. That is, if Obamacare had raised everyone’s taxes by the amount of the mandate, and then given a tax credit to those who got insurance, would that result in more or fewer insured than an equivalent penalty for disobeying the mandate (ceteris paribus) and no tax hike?

    Would the social stigma of being penalized lead more people to get insured? Or would the good feeling of earning at tax credit for doing the responsible thing lead more people to get insured (even if the cash flows were exactly the same)? To me, it’s not immediately obvious.

  5. Jarek says:

    It is worse if a company had to lay off wrkeros recently and tries to hire again. They pay a penalty rate, often for several years. The unemployment compensation premiums act as a deterrent to hiring.