Obamacare’s most disliked component is the “individual mandate” to buy health insurance. It is a provision that very nearly got the entire law struck down in court. Now some conservatives are warning that Republican plans to replace Obamacare may include their own versions of an individual mandate. The critics are wrong. But it’s not surprising that this subject has inspired misunderstanding. The individual mandate has been mired in confusion from the beginning.
Confusion, and worse. President Obama, while he was trying to get the law enacted, insisted that its penalties for people who do not buy insurance did not amount to a tax. After it was enacted, his administration insisted in court that the penalties were taxes for one legal purpose and were not taxes for another — in the same case. The Supreme Court worsened the muddle when it considered the law, effectively rewriting the relevant provisions.
The Patient Protection and Affordable Care Act — the official name of the law that established Obamacare in 2010 — included a section titled “Requirement to Maintain Minimum Coverage.” It said that individuals, with certain exceptions, “shall” make sure that they have “minimum essential coverage.” It then said that individuals who fail to meet the requirement, with additional exceptions, would have to pay a “penalty.”
The Democrats who enacted the law had two main rationales for including this language in it. In the public debate before enactment, the leading argument was that people who did not buy insurance were raising premiums for people who did: a valid point, although the magnitude of this effect was frequently and vastly exaggerated. In the litigation that followed, the leading argument was that the law’s regulations would not work if people were allowed to go without insurance.
The law forbade insurers to discriminate on the basis of health status. Without a requirement to buy insurance, then, people could wait until they were already sick to buy it. Insurance markets could not continue to exist under those conditions. That’s the most important reason the requirement was put into law.
The requirement ended up in court because it was not clear that Congress had the power to impose it. The Constitution gives Congress the power to regulate commerce among the states, and to make all laws necessary and proper to execute this power. Until Obamacare became law, the Supreme Court had never considered whether these parts of the Constitution authorized Congress to force people to enter into commerce.
In 2012, five justices of the Supreme Court — the relatively conservative ones — held that Congress did not have this power. Congress could not make it illegal to go without health insurance. But one of those five, Chief Justice John Roberts, said that Congress could impose a tax on people who made the legal choice to go without insurance. He said that the law could be read as enacting that policy. It wasn’t the most natural reading of the law, he allowed; but because it was a possible reading that reconciled the law with the Constitution, the Court should adopt it.
Whether the “individual mandate” is alive or dead, then, depends on whether the phrase refers to the legal requirement or the fines. The Supreme Court killed the requirement. Someone who considers it wise not to buy health insurance can do so without fearing that he is breaking the law. But he will have to pay the government for making that choice — just as, if the Court had upheld the requirement as written, he would have had to pay the government for breaking the law. From the standpoint of his wallet and the U.S. Treasury, it makes no difference whether he is making a choice that is legal but discouraged by taxes, or illegal and punished by the IRS.
Because the Court’s decision made so little practical difference in the operation of the law, people generally said that it had upheld the individual mandate — even though the law no longer actually commands the purchase of health insurance.
Nearly all Republicans want to abolish Obamacare’s fines for not being insured. Their main strategy for enticing young and healthy people to get covered would be to give them cheap, attractive policies to buy rather than to coerce them. But the Republicans are advancing their health-care ideas in the context of this terminological fuzziness.
The leading Republican bills to replace Obamacare have included tax credits to help people who do not have access to employer-provided health coverage buy policies that protect them against catastrophic health expenses. (They could buy more extensive coverage if they supplemented the credit with their own money.) Conservatives and libertarians who for various reasons dislike this policy have said that it bears a disturbing resemblance to the Obamacare penalty. If you buy health insurance you get a tax credit; if you do not buy it, you don’t get a tax credit and therefore pay more taxes. Ergo, the government is imposing a penalty on you for not buying insurance — just as with the individual mandate.
Nobody on the Supreme Court bought this argument. Antonin Scalia, writing for four justices, would have scrapped the entire law because of the mandate. But these justices explicitly conceded that a tax credit to buy insurance would raise no constitutional issues. Obamacare contains a tax credit itself, and nobody ever challenged its constitutionality.
If a tax credit for health insurance really were the same as a mandate, we would also have to say that the tax deduction for mortgage interest amounts to a mandate to borrow money for a house. The tax break for employer-provided health insurance would count as a mandate for employees to forgo wages in favor of health benefits. There would, that is, be no such thing as a tax incentive that was not also a mandate. All the claims that conservatives and libertarians made to the effect that the individual mandate was an extraordinary and novel imposition would disintegrate. All they would have left is a specific policy disagreement and a general hostility to the welfare state.
Some Republican bills have included an even more controversial idea: “auto-enrollment,” or “default enrollment,” for people who do not use their tax credit to buy insurance. States would have the option to assign insurance plans to these people, but they would retain the power to reject the assignment. The arrangement would have two advantages. First, people would be protected against catastrophic health-related expenses even if inertia had kept them from selecting an insurance plan. Second, it would make it easier for Republicans to defend themselves against the criticism that their legislation would take millions of people off the insurance rolls.
This idea rubs some on the right the wrong way, too. Even some conservatives who favor the tax credit have objected to it on the ground that it’s too similar to the individual mandate. There are, however, two important differences. Auto-enrollment lets people say no to insurance, whereas the mandate — again, as originally put into law — would not have offered that choice. Participation would not be compulsory. And saying yes, or saying nothing, would not require anyone to take money out of his pocket and give it to an insurer.
Conservatives and libertarians might still object to default enrollment on the ground that tax dollars or tax breaks shouldn’t be used to help people buy health insurance. It’s the same sort of reason people might object to Medicaid or Medicare. (And in fact both Medicaid and Medicare have used default enrollment for various purposes without arousing much controversy.) The idea also poses formidable administrative challenges for states and the federal government.
My own view is that both tax credits and default enrollment should be parts of an Obamacare replacement that drastically reduces the federal role in shaping insurance markets; and that they can make such legislation viable by making sure that many millions of people do not lose their insurance as Obamacare is replaced. There is room for reasonable disagreement on these points. It would be a shame, though, if the cause of replacing Obamacare were set back by mistaken comparisons of these ideas to the individual mandate.