Saturday, June 30, 2012

Two More Cents on the Obamacare Decision

Update from the last post on the Supreme Court decision

There is in fact a huge difference between a tax on people without health insurance and a mandate enforced with a penalty.

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 literally have sent inspectors around and drag you off to jail for not having health insurance.

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. 

Since the penalty under the mandate is so much less than the cost of health insurance, it was already pretty clear that they were going to have to start using strong-arm tactics to enforce the mandate.

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. 

Now, none of this can happen. By construing the penalty as a "tax," and holding it unconstitutional as a "mandate," Roberts has clearly said that the penalty is the only recourse the Federal government can use to enforce its mandate. It is only a tax on individuals who don't have health insurance. It is not a law that people must have health insurance, enforceable by the usual array of legal administrative and regulatory sanction.  

The minute HHS tries anything beyond the penalty to coerce people to buy health insurance (which it will--it must), HHS will be sued (which it will).  The suit will say: "A mandate is unconstitutional. It's only a tax. We paid the tax. Go away." The suit will go to the Supreme Court. In the current court, it will win in a heartbeat.

That pretty much undermines the whole mandate business just as effectively as striking it down would have done. 


  1. That's more palatable. Thank you. But also remember. Taxation without representation.

  2. Fair enough…..except. A tax should be labeled as a tax, debated in Congress as a tax and signed in to law as a tax. When a constitutional challenge is raised, the supporters should not deny that the tax is a tax. I’m not annoyed that Roberts turned the whole thing back over to the political arena. I believe that those of us who think we can do better than ACA will make our case and get much of what we want. I am very annoyed that the administration and congress were so duplicitous in the whole affair. We should have spent of the past two years talking about health economics, not constitutional law. I understand and respect Robert’s decision but I still wonder if he just should have called their bluff.

  3. Too much semantics, too little substance. Look upon the mandated insurance premium itself as a tax earmarked for an individual's health insurance. Those who don't pay that tax, pay an alternative tax, called a penalty. By the way, Social Security works the same way, except there's no opt out via a penalty, and the federal government has chosen not to outsource the provision of this annuity. Also, Virginia car insurance works the same way - insure, or pay a penalty.

    Pity the good Roberts didn't argue this way, but he made the constitutionally correct decision.

  4. Lots of problems with this.

    1) By traditional legal and moral principles, what is impermissible directly is also impermissible indirectly. If I cannot do A without violating law or morals, I cannot do legitimate thing B, in order to force A to come about. ie, inserting a layer of indirection does not make my illegitimate act legitimate.

    That was even pointed out in US law regarding the taxing power (US v Butler): "The power of taxation, which is expressly granted, may, of course, be adopted as a means to carry into operation another power also expressly granted. But resort to the taxing power to effectuate an end which is not legitimate, not within the scope of the Constitution, is obviously inadmissible."

    2) "That pretty much undermines the whole mandate business just as effectively as striking it down would have done."

    Not at all. What it put in place was is effectively an unlimited democracy. Political reality makes some things like a $10K head tax difficult to enact, but if political difficulty were considered sufficient constraint on the government, there would have been no reason for constitutional limits on government action in the first place.

    3) Head taxes are explicitly unconstitutional unless they are apportioned among the states by population, and this mandate is obviously a head tax.

    4) The effect of this form of taxation, even in the most rose colored blush, is to allow Congress to hold your liberty to act (or not act)--in any imaginable sphere--for ransom, forcing you to buy your liberty back at the price they have set. There is no dollar price they can choose, whether high or low, that can make that consistent with the principles of liberty or morals.

  5. While I agree with you in theory, in practice I think a tax is worse than a mandate.

    Most states have a mandate for automobile owners to buy liability insurance. This is less objectionable than a health insurance mandate because it is done at the state level (you can move to New Hampshire if you don't like it, and states have fewer Constitutional restrictions than the federal government), the insurance pays to other people and it applies only to people who buy cars.

    In principle, people could be hauled off to prison for not having car insurance, but it doesn't happen. 15% to 30% of drivers don't carry insurance and the only penalty is occasional fines and license or registration suspensions. The latter penalties are ironic, because the real effect of the liability insurance mandate is for people without assets (and therefore who get no benefit from liability insurance) to drop off the automobile grid. They seldom register their cars or get driver's licenses. That's why there's so much uncertainty about how many there are.

    Suppose that were switched to a tax and all adults had to submit an annual filing (with their state income tax, if any) certifying that either (a) they did not own a car, (b) they were exempt from the tax or (c) they had insurance--or they had to send a check for $695.

    The same people would fail to buy insurance, but now they'd have to drop off the entire government grid, not just the one run by the DMV. They wouldn't file the declarations, or would lie, or would tell the truth but not pay. They'd have to avoid all government lists: they wouldn't vote, serve on juries, apply for programs or answer census takers. They would become illegal aliens in their own country.

    A $695 tax per person is a poll tax (a tax in which everyone pays the same amount), and poll taxes have been used historically for this purpose: excluding targeted groups from society. They are always applied unfairly, and frequently lead to revolution.

    Income taxes make people hide income from the government, sales taxes make people hide transactions, property taxes make people hide property. Poll taxes force people to hide themselves from the government, which is far more corrosive.

  6. Except the law, as written, explicitly forbids any other penalty for not obtaining health insurance. The only thing that is allowed under the statute is the financial penalty (which works very much like an income tax ~1-2.5% of AGI).

    According to the statute:

    "In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure."

    So while it may be fun to imagine all the various horrors government will visit upon the citizenry as a result of this law, "sending inspectors around to drag you off to jail" is specifically forbiden with, or without, Supreme Court intervention.

    1. This is really interesting. You have obviously read the law better than I have...

      I read the sentence you quote differently, and it is amazing.

      First, this sentence does not say what you claim. It says that if you don't pay the penalty they can't put you in jail for not paying the penalty.

      That does not say that if you don't buy health insurance, they can't come after you in other ways to enforce their mandate.

      In the plain English of this sentence, "Failure" is "failure to pay a penalty" not "failure to buy health insurance"

      But it does, amazingly, say that they can't do anything to you if you don't decide to pay the penalty!

      Why would anyone pay any penalty if "failure to pay any penalty" means you "shall not be subject to any criminal prosecution!" Nobody would pay any taxes if the rest of the tax code were written like that.

      If you're still here, can you post the source for the quote? Maybe the surrounding paragraphs are clearer. This law is full of Orwellian doublespeak, but "in case you don't pay your taxes, you can't be prosecuted for it" seems too outlandish to be the full story.

    2. Amazing but true. Just google the sentence, which I should have done before posting the first reply. Yes indeed, you cannot be prosecuted for failing to pay the "penalty."

      As I wrote though, this sentence, according to the first page of google results I saw, only applies to not paying the penalty.

      My understanding is that the bill is silent on the larger question -- what if you don't buy health insurance and do pay the penalty? Can HHS go after you by other means? My understanding is that none are spelled out - -and none are explicitly forbidden. Any experts in the room?

    3. Just because they can't "prosecute" you does not mean they can't turn you upside down and shake you until your fillings fall out to collect the outstanding penalty. (More realistically they would seek to attach your assets to collect.)

    4. A friend points me to pg 32 of Roberts' opinion:

      "Under the mandate, if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS when he pays his taxes. See §5000A(b)."

      While the current ACA does not seem to give HHS the power to enforce the mandate, it is comforting that all future enforcement of mandates must be justified as a tax.

    5. I am lightyears away from having any competence on the matter, and English is not my mother tongue but:

      (A) Waiver of criminal penalties
      In the case of any failure by a taxpayer to timely pay any
      penalty imposed by this section, such taxpayer shall not be
      subject to any criminal prosecution or penalty with respect to
      such failure.
      (B) Limitations on liens and levies
      The Secretary shall not -
      (i) file notice of lien with respect to any property of a
      taxpayer by reason of any failure to pay the penalty imposed
      by this section, or
      (ii) levy on any such property with respect to such

  7. What is important here is that the Republicans simply believe that only those, who can afford it, should have access to health care. In other words, the Democrats want "Medicare for all", the Republicans want "Medicare for none". There is no way the decision to free ride the system, and to shift costs to others is constitutionally protected. The Court put a stop to that nonsense. I suggest reading the U.S. v. New York opinion (505 U.S. 144, 1992). What the Court did back then is similar to what happened on Thursday (penalty can be viewed as tax so save a statute). Any attempt to base the health care reform on private market without the insurance mandate is doomed because of adverse selection problem. Either we have the mandate, or we give up universal coverage.

    1. Unbelievably stupid. No there were many many other ways being put forth that avoided an individual mandate including risk pools. But if you just read and believe things from only one political party then you can easily fall prey to believing their talking points.

  8. What the nation needs is spending. Obama should go to the public:

    It is become painfully clear that a lot of people are spending less that the average and not doing their share to help the economy. This is selfishness and inequality that we have come to see is a big problem within and among Americans.

    Yes, I know there are a few economists who say we need savings to form capital to provide investment for our future, and they do have a point. But we really don’t need people to do that because we have much more debt we can take on as a nation to provide all the capital expenditures we need as you can see how well we have done so already in my administration.

    And the New York Times, has made it perfectly clear that the science is in and the problem with our economy is lack of demand. I therefore propose legislation under the new Obama /Roberts constitutional amendment where any individual who voluntarily chooses to not be a good citizen and spends less than their neighbor, will bear a penalty, not a tax, that the IRS will add to their tax bill each year.

    This tax, I mean penalty, will start with fiscal year 2014 as it will take that much time for the new Consumer Financial Protection Bureau to put in place the software for every bank to report the spending in every bank account and identify each bank account by name, address, and national id number.

    Thank you very much and may the government bless you.

    1. The amendment you are proposing would never pass but it would work and improve the economic situation. If people, who are not spending, would pay tax, the Goverment could use the extra revenue an create jobs either directly or indirectly (pay contractors to build bridges, planes, tanks,...). Taxes are very effective in creating jobs when money are taken from people, who are unlikely to spend or invest it.

    2. People aren't lazy because they are lazy. They are lazy because their efforts arent INTERESTING. Why aren't their efforts INTERESTING. the same reason that a truffle dug by a black man is worth 1.$ and a truffle dug by the king is worth 1000.$. It depends on where the truffle was DERIVED from.

    3. Squire
      Compounding interest
      Monetary expansion

      Why is it that these two MAJOR factors in the modern monetary structure are completely left out of ALL modern economics studies. This sounds like a conspiracy. You all know these two factors exist yet you all refuse to acknowledge them. Your research cannot be accurate if the structure you say you are studying does not exist. You speak of supply and demand but you know that would require a capitalist structure where capital could not be Hypothecated. Just like this word indicates. The structure you are describing is purely HYPATHETICAL. It is not the world we live in. And we all know it.

    4. Unreal. some people actually believed you were not writing tongue in cheek, and one of the Idiots thought it was a good idea!

  9. Does anyone remember that you will get a life sentence in jail and be declaired a terrorist for not buying federal reserve company shares with your labor. ($) I refer to the many instances of this since Satan (A. Lincoln) monetary reform. These sick bastards Will kill you if you refuse to buy FEDRV stock shares.

  10. John,

    When you say, "The minute HHS tries anything beyond the penalty to coerce people to buy health insurance (which it will--it must)"

    Can you give some examples? I don't understand.

    1. Penalty is a lot less than the cost of health insurance...and we just found out (see comments above) that they can't even do anything if you refuse to pay the penalty. With guaranteed issue at the same price for all, and no enforcement of the penalty, it looks to me like many people will use a cellphone as health insurance -- call on the way to the hospital. They'll have to come up with a stronger stick.

    2. Sure they can. They will decrease your tax refund by the penalty amount, if you do not carry insurance. This is quite effective. Also, the IRS can file a civil suit to collect the penalty. What they cannot do is prosecute you as they can if you do not pay real taxes.

    3. What's to stop them from changing the law in the future?

  11. The issue is neither penalty nor tax, but rather what is going to be done to the healthcare system once the Ruling Power is the same group of people who conduct the Comparative Effectiveness Research. By dealing the death-blow to the sovereignty of the consumer, we now officially have one option, and one option only: Whatever the government and the insurance companies tell us is so, is so.

    Opt-out is the final recourse of a dissatisfied consumer. That can't happen now. We're screwed.

    1. Exactly. It's time for everyone to get over this silly mandate business and get back to the 99% of the bill that is constitutional, at least until Thomas takes over (Joke here, don't go nuts pleas), but is a total disaster for health care and health insurance.

    2. The constitution is totally invalid. I say we trash it and separate into our separate states. Abraham Lincoln also thought the constitution was stupid. Why else would he do what he did. The judges can't agree on it so it is not a valid law, since it has to be interpreted by who ever is in power. If these sick people think it is their right to interpret it, it is therefore non valid as a law. The same way you think that economists can change the definition of economist from Moral Scientist to Rigged Casino Analyst. Those who are in power get to write the laws. There are no laws of the land. And there is no history in modern economics. "Do as you will, is the whole of the law"

    3. John, could you please explain how countries like Sweden, Denmark, Netherlands, Hong Kong, Singapore and Switzerland manage to offer health insurance and access to all of their citizens without turning into Nazi Socialist Nightmares ? My understanding is, Swiss system is quite similar

      ( I am not including Australia, Norway, Canada, Denmark because they have natural resources per capita )

  12. How many articles have there been stating: "Individual mandate upheld?"

    The spin is incredible.

    Still, Roberts punted and rejected the economic consequences of the unrestricted ability of Washington to tax anyone at any desired level. Perhaps draconian taxes will not pass in the current pollitical environment, but the threat is always there. If tax rates are high enough, the government can certainly put people into jail for not paying taxes. That is also supported by legal precedent.

  13. This comment has been removed by the author.

  14. Gotta love all the mental energy and bandwidth being dissipated over lexical "nuances."

    1. I red uer profile. What a mess. You need to clean that up.

    2. As soon as you learn to spell.

  15. Punitive taxation is a tangible form of aggression. Currently no limitations have been established by the supreme court on that form of aggression. The looming threat promises consequences and will inhibit investment.

  16. People forget that each of the state and federal agencies has it OWN mission quite apart from the Obamacare law. A state could decide that if you have no health insurance, you best not be driving a car, for your own good, and by order of the state health department. The Federal government could decide that if you have no health insurance, you best not be travelling abroad, again for your own good, and to avoid diplomatic embarrassments and entanglements between the USA and foreign nations. My point is that state and Federal agencies are legally authorized to pursue and complete their OWN missions, quite apart from the Obamacare law.

  17. Money bills must originate in the house.

  18. Some thoughts: First, the maximum tax penalties are spelled out in the ACA, as is the mechanism of enforcement--the mandate can only be enforced by a tax penalty collected by the IRS (HHS actually has nothing to do with it).

    Second, the law prohibits criminal prosecution for refusal to pay the penalty, which is actually the exact same standard as we use for income taxes--you can never be thrown in jail for refusal to pay any type of tax to the federal government, and that includes the ACA penalties. Now refusal is not the same as evasion--you will go to prison if you commit fraud to avoid paying the prison.

    Third, the penalty in the ACA is actually a bit less forceful than a typical tax, because using tax liens are specifically prohibited.

    In all, regardless of the Supreme Court ruling, the ACA as written permits only a tax penalty, charged at most once per year on the individual's tax return and at most less than 2.5% of the individual's income, that can be enforced only by withholding the individual's tax refund.

    I would also add that all of the discussion about the precedent set by the Supreme Court ruling is bogus. A minority of the court thought the law was neither a tax nor interstate commerce, a different minority thought it was interstate commerce but not a tax, and only one justice thought it was a tax but not interstate commerce. The only point that a majority actually agreed on was that the ACA specifically was constitutional--the decision is devoid of any precedent at all.


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