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If the Supreme Court strikes down the individual mandate, what next?
My prediction is the mandate could very easily rise from the grave in a new form, namely, the "conservative" idea of giving everybody a new universal health care tax credit, coupled with a policy called "auto-enrollment."
I call it a soft mandate, and it’s arguably as bad as the original.
Dean Clancy is FreedomWorks’ Legislative Counsel and Vice President, Health Care Policy.
Hi, I’m Dean Clancy in Washington, and it’s Tuesday, April 10, 2012. And I want to talk today about health care, and specifically about the individual mandate to purchase health insurance.
What happens if the ObamaCare mandate is struck down by the Supreme Court? What will the Democrats do? What will the Republicans do? Where does the debate go, if the mandate goes? How will it affect the elections?
Here’s my prediction. I think it’s quite possible the individual mandate will rise from the grave in a new form. And I’m worried that both political parties, for their own reasons, will conspire to make this happen. Specifically, what I’m worried about is a coalescence of the Left and Right around the idea of giving everybody a new universal health insurance tax credit, coupled with a policy called auto-enrollment. There would be no mandate, formally speaking, but the effect would be similar. I call it a soft mandate, and it’s arguably as bad as the mandate. But about that, more in a second.
At the start here, I just want to clarify that I’m assuming for this discussion that the Supreme Court strikes down only the mandate. It could do something else -- strike other parts of the law as well, or the entire law, or it could uphold the entire law. We won’t know till late June, early July, when they announce their decision. But for this discussion, let’s assume only the mandate goes away and the rest of the law stays in place.
And let’s just remind ourselves of what would still be in place. It’s a 2,801-page law. There’s a lot of stuff in there. For example, you’d still have the employer mandate, which is the requirement on employers to offer insurance to their workers. You’d still have the mandatory, government-defined benefits package, complete with coverage of contraceptives and so-called reproductive health services, that we’ve heard about in the news. You’d still have the exchanges, those pseudo-marketplaces where people will go to get their government-subsidized health coverage -- the premium subsidies would be through the tax system. And you’d still have the two big mandates on the insurance companies, which are known as guaranteed issue and community rating. Basically, those say that the insurer has to cover everyone -- who has pre-existing medical conditions, for example -- and they’d have to charge everyone the same price regardless of their health status. And of course, your kids will still be able to stay on your insurance policy until they’re 26. Oh, and by the way, there’s also the big Medicaid expansion in the bill, and the $500 billion in ten-year Medicare cuts, and the 15-member un-elected Medicare rationing board, and all the new taxes -- I mean, it goes on and on. There’s a lot in this law besides just the mandate.
And if the mandate goes away, all that’s still there -- but the whole picture will change.
Without a mechanism to force us all into the system, those insurance mandates -- guaranteed issue and community rating -- will actually cause insurance premiums to go up, and that’ll cause people to start dropping their coverage, waiting till they get sick to get insurance -- pretty soon you’ll have what the experts call a health insurance death spiral. The whole scheme will go kaput. And the number of uninsured will go up, and of course that’s the very opposite of what the law’s authors said they were trying to do, namely, achieve “universal coverage.” All of that would happen just from deleting that one thing, the mandate.
So if that happens, what are the folks in Congress going to do do -- what are they going to say? Here’s what I predict.
First of all, the Democrats. They’re going to minimize their defeat. They’re going to say, “Well, it’s not so bad. The bulk of the law survived. We just need to come up with a replacement for the mandate. We just need to find a way to encourage people to buy insurance voluntarily, so we can avert that death spiral. And frankly there are a bunch of ways we could do that.” And then what they’ll do is they’ll mention four possible options, which they’ve been discussing in print. And those are, first of all, you could just have a new payroll tax, second a late penalty, third an irrevocable opt-out, and fourth, auto-enrollment (remember that term, we’re going to come back to it).
Now, let me take just a second here to clarify what those four policies would actually do.
First of all, the payroll tax. That’s just like what we have for Medicare and Social Security -- money coming out of your paycheck. My guess is the ObamaCare payroll tax, if they create it, would equal about 8 to 10 percent of your wages. And of course, that would be on top of the 15 percent of your compensation you’re already paying in FICA taxes (I’m folding both the employer and employee shares into one number here). And we know the Supreme Court’s going to find that constitutional, ‘cause they already have. So that would be very straightforward. But it would also be hard to get through Congress, because who wants new taxes?
Now, the second idea is a late penalty. And basically how that would work is -- let’s say you decide not to buy insurance, but later you change your mind. Okay, you can come in now; but for every year you’ve tarried, we’re going to charge you an extra 10 percent each month for the rest of your life. And by the way, that’s how they do it in Medicare Part B. It’s nominally optional, but it’s really basically mandatory: 98 percent of seniors sign up for Part B because of that pretty stiff late penalty. You could do that with ObamaCare.
Third idea, irrevocable opt-out. And what that means is you sign a piece of paper saying, “I don’t want to participate in this government health care system. I want to be out of the system, thanks very much.” And that’s irrevocable. You’re out, forever. Or more likely, what they would do is they would give you a chance, say, every five years, if you change your mind, to come in without penalty. And my guess is they’d also allow special times to come in, if you have a serious hardship or something. But otherwise, you would be on your own. I’m not sure the idea will work, but it’s out there.
And fourth, there’s auto-enrollment. And basically that means that either the government or your employer will automatically enroll you in an insurance plan, but you can opt-out if you really want out. And that’s the gentlest of the four options. And I predict that that’s the one you’re going to see talked about the most, if the mandate goes.
The reason the liberals will prefer auto-enrollment is that, of all these fallback options, none of which is appealing to them, the auto-enrollment at least will cover more people than the others. So with the mandate 32 million people would get covered in the year 2019. Without the mandate, only 16 million, or half. But with auto-enrollment, you would get up to 24 million. So from the Left’s perspective, that would be better than nothing.
But one thing to keep in mind is these four options that I’ve mentioned are not mutually exclusive. In fact, you could combine all of them, if you wanted. You could have auto-enrollment, plus a five-year irrevocable opt-out, plus a 10 percent-a-year late penalty, plus a new 10 percent payroll tax. You could do all of that. And don’t you just know the Democrats are gonna select “All of the above”?
But anyway, so much for the Democrats. Let’s talk about the Republicans. All right, here’s what I think they’ll say. They’ll say, “Hey, ending the mandate is a huge vindication for us -- a big victory. We said this was unconstitutional. The Supreme Court agrees. We told you so. But we can’t stop here. We need to repeal ObamaCare in its entirety. And we also need to fix our health care system, the right way. We’ve got a bunch of ideas for doing that.”
And they do. The Republicans do have a bunch of ideas for fixing what ails our health care system. I’ll just mention a few of them here. For example:
Here’s my personal favorite:
Those are just some of the ideas that various Republicans have proposed. And they’re by and large pretty good, common-sense ideas. I think they’d reduce costs without costly mandates, without a big new bureaucracy, without a 2,801-page bill that “they have to pass so we can find out what’s in it.” Oh, and by the way, with all of these ideas, you would actually get to “keep your coverage if you like it,” unlike under the president’s plan. Anyway, that’s all great.
But the one problem that I haven’t mentioned the Republicans dealing with -- and it’s very important -- is pre-existing conditions. You probably know what that is. It’s the most important problem in health care. If you fix the problem of pre-existing medical conditions, I think you fix the health care issue, as a general matter.
What is that, exactly? It’s the problem you face when, let’s say you have diabetes and you’re unemployed or you lose your job -- you have no health insurance. So you go to buy coverage online or out of the yellow pages, and they want to charge you an arm and a leg because of your health status, because of your preexisting condition. That’s a problem for a lot of people, maybe 2 to 4 million people in this country, so not a huge percentage of us, but for each one of those people it’s a big deal.
And guess what? That problem can be addressed. It’s mainly caused by government policy. My line is whenever someone tells you that there’s a “market failure,” look closer: it’s a government failure. There’s some government policy causing the problem. And that’s definitely the case here. The problem with pre-existing conditions is primarily caused by the United States tax code. That’s right, it’s the tax code. And how does that happen? Well, basically the government doesn’t create a level playing field for health care versus health insurance, for health insurance obtained at the workplace versus health insurance obtained out of the yellow pages, for health insurance that has a low deductible versus health insurance with a high deductible. By the way, a deductible just means the amount that you pay out of pocket before the insurance kicks in. All of those distortions are caused by the way we treat health benefits in our tax code.
So the Republicans are aware of this, and they want to do something about it. Democrats don’t like to talk about it; they would rather have a government system. But the Republicans know they need to do something. And their main ideas for doing it -- and here we’re circling back now to where I started, with tax credits -- their main ideas are tax credits and tax deductions. And the difference between these is a credit is like a voucher you could take and you could use it to buy a health insurance policy from a private company. A tax deduction would be something you could use for medical expenses out of pocket. So you just deduct those off your taxes. And that’s really good for people who have high medical expenses, people with chronic illnesses and so on. And these two policies are not mutually exclusive. You could have a tax-credit system to help everybody buy into the insurance system, and you could also have deductions for people with high medical expenses. In fact, we already have that deduction, but it has to be such a huge percentage of your income, most people can’t access it. You could liberalize that, and I think you should.
But the point of all this is that if you have a tax credit, you are in effect creating what I would call a kind of soft mandate. How is that? Well, if the tax credit is, let’s say, $5,000, then if you didn’t take the credit, you would in effect be paying a $5,000 tax penalty. It’s a carrot rather than a stick, but the effect is similar to a mandate. And that’s probably tolerable, because it is optional. But what if you combined that with auto-enrollment? Now you’re really putting a lot of pressure on people to get covered.
And that’s why I think the Democrats are going to seize on this idea, which will probably be presented as a Republican idea: tax credits plus auto-enrollment.
The idea was originated by the conservative Heritage Foundation in Washington. And if you’ve not heard of them before, they were the same folks who originated the individual mandate and the idea of exchanges and applying guaranteed issue and community rating to insurance purchased with universal tax credits. That whole system, which is similar to ObamaCare, started with the conservative Heritage Foundation. Originally, the liberals didn’t like it at all, and over time they’ve come basically to embrace it, whereas conservatives were split on it back in the early ‘90s during the HillaryCare debate, and over time they’ve come to oppose the individual mandate very strongly. So Heritage has backed off on that. They’ve also dropped the exchanges, which have become controversial. But they’ve retained the idea of the tax credits. And they’ve adopted this new idea of auto-enrollment. It’s sort of, as I say, a soft mandate.
So the Heritage plan, which is the model for ObamaCare, turns out to still be there, in a new guise. And that’s a problem, because if we go there, in the wake of the mandate falling, then I think you’ll see ObamaCare, in effect, resurrected. We shouldn’t do that.*
The problem with these kinds of approaches is they’re focused on the wrong goal. They’re focused on the goal of increasing coverage or “universal coverage.” Instead the goal should be costs -- lower costs -- and expanding individual freedom, helping patients to function more like consumers. Health care can be a functioning marketplace like any other, if you let it. And its problems, as I mentioned, are primarily caused by existing government policies -- the tax code, red tape, federal regulations, trial lawyers, and a lot of problems that can be addressed by letting the system work as it would naturally.
And incidentally, the [tax credits plus auto-enrollment] idea is to replace the existing employer-based system with these tax credit vouchers. That would disrupt coverage for a lot of people. It would be very un-conservative, to the extent you didn’t let people keep what they were used to and like.
So [my advice is] focus on costs rather than coverage. Don’t disrupt the employer-based system. And leave individuals free to make their own choices with their doctors and loved ones.
That’s free-market, patient-centered health care reform. That’s what we need to be doing.
I think to address the tax-code problem what you need is that deductibility that I talked about, combined with all those other [Republican] reforms that I mentioned. And you would have, I think, a very robust health care reform program.
And I would also say, on a last note, don’t put it all together in one big bill, and don’t force people to read it after you’ve passed it. Take your time. Do it piece by piece. Debate it. Deliberate on it. Think about it. And let the people know what you’re doing. And if you do that, then you’re going to end up with a great health care system, and you’re not going to have this nightmare of ObamaCare.
So that’s it. Auto-enrollment plus tax credits? Not such a great idea. But maybe we can stop that.
Remember, government goes to those who show up -- so show up. And thanks for listening.
Dean Clancy is FreedomWorks' Legislative Counsel and Vice President, Health Care Policy. He leads our efforts to replace the government takeover of health care with a patient-centered system.
*Update, April 27, 2012: Since this broadcast, I've been told by a person who's close to the Heritage Foundation that the think tank has never in fact formally endorsed "tax credits + auto-enrollment." I'm delighted to hear this, for the reasons I gave in my radio talk. But I'm still a little confused, since Heritage's comprehensive Saving the American Dream budget plan specifically mentions both tax credits and auto-enrollment, and one of Heritage's leading policy thinkers also seems to endorse the concept in a recent opinion piece in USA Today. Clarification would be helpful.
[Note: This post was first published on April 10, 2012. I've reposted it for those who are following the Supreme Court's health care ruling, widely expected to be handed down tomorrow, June 28th.]