The voices of Tax Policy Center's researchers and staff
In the coming months, the US Supreme Court will rule for the third time on the constitutionality of the individual mandate that is a central element to the 2010 Affordable Care Act (ACA). This case was brought by several Republican state attorneys general, who argued that because Congress effectively eliminated the tax-based mandate, the entire law is an unconstitutional intrusion into states’ rights.
Yet every party to this conflict—the Court, Republicans, and Democrats—has twisted itself into knots by failing to understand how a modest penalty for not obtaining insurance can adhere to both Republican support for individual responsibility and Democratic efforts to expand health insurance without violating the Constitution. Congress easily could clear this up by changing the nature of the tax penalty.
Keep in mind that the ACA’s mandate was never a true mandate but rather a modest tax on those who choose to not get insurance. When the ACA was enacted, the penalty tax, or fee, was equal to 2.5 percent of household income up to a maximum of $695 per adult. In the 2017 Tax Cuts and Jobs Act (TCJA), Congress set the penalty tax to zero.
Long before the ACA, I suggested that the simplest way to enforce a mandate is to make some federal tax benefit—say, a higher standard deduction, separate or enhanced Child Tax Credit—dependent upon having health insurance. Or, in contrast to a $695 penalty on those without health insurance, simply adding a $695 deduction for those with health insurance.
Paul Van de Water of the Center on Budget and Policy Priorities and I outlined the administrative benefits of this idea here. Since eligibility for almost every government tax benefit already is based on taxpayers engaging in certain behavior, such a step likely would make the debate over when a mandate is a tax, a tax a mandate, and at what rate does one convert into the other, disappear.
Instead, the political system has tied itself into knots over the current mandate. The Court gets further into metaphysics, Republicans indirectly argue for larger government, and Democrats fail to pursue a simple legislative solution that could expand health coverage.
Let’s start with the Court. You may remember that Chief Justice Roberts opined in 2011 that Congress could not force people to purchase health insurance but could tax those who fail to do so.
When Congress set the individual mandate penalty rate at zero as part of the TCJA, it eliminated the requirement in practice, but it did not repeal the ACA, or even the tax. The Court now must decide whether a zero-rate mandate is no longer a tax but still an unconstitutional mandate. This will test whether the Court wants to engage in a debate more metaphysical than the type Roberts accused economists of, such as the lack of distinction between a tax and a mandate. During oral arguments earlier this month Roberts seemed to decline, telling lawyers for the states that want the law reversed that it is “not our job” to legislate repeal of the Act.
The semantic, legal distinction between taxes and mandates never made much sense. Our Constitution clearly allows Congress to tax all of us to fund benefits for only some of us. What is the logic of saying that Congress can impose an income tax to pay for, say, low-income housing assistance or farm subsidies for a relative few but can’t use a tax to encourage people to obtain insurance?
For their part, the attorneys general who want the ACA thrown out effectively have been arguing for bigger government. When it comes to health care costs, either we pay ourselves or someone else pays for us. Thus, if Republicans gut incentives for people to insure themselves, they encourage the substitute—more government subsidies and regulation.
When you take into account Medicare, Medicaid, tax subsidies, and insurance for government employees, government already covers about 65 percent of total healthcare costs. The desire for more individual responsibility was a key reason why Mitt Romney, then the Republican governor of Massachusetts, first enacted a mandate as part of his insurance reform.
A mandate also is important if government is going to require insurance companies to sell to all comers, with no underwriting for pre-existing health conditions. Without some government-imposed nudge, many people would not insure themselves until they got sick, increasing the burden on providers and government and raising insurance premiums to unsustainable levels. Indeed, Republicans have already raised the cost of ACA exchange subsidies since, by gutting the mandate, they encourage more healthy people not to purchase insurance until they get sick.
Regardless of these efficiency issues, it’s simply unfair when people who buy insurance have to cover the costs of those who have equal ability to purchase insurance, but do not.
Let’s not let Democrats off the hook. They were unwilling to tie insurance coverage to other government benefits because they didn’t like the appearance, even if the clawback of net benefits led to exactly the same result as the penalty they imposed.
Instead of wallowing in this pointless debate over taxes versus mandates, policymakers should be focusing on the real health issues facing the nation. Legislators could make the Supreme Court case forever moot by adopting a practical solution consistent with both conservative and progressive principles. Because ACA reform has been proposed by President-elect Biden, this issue could come before Congress soon. Despite all the ruckus over the mandate, this is actually an area where Republicans could find common ground with Democrats.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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