Friday, March 30, 2012

The Individual Mandate and its implications

It appears that the individual mandate was a legislative overreach. The reaction from the left is interesting. Some are complaining about the idea of a limiting principle and wondering where that came from? (Answer: the Constitution). A few days ago a column appeared on Slate questioning why we even needed legislative review by the Supreme Court. After all, Speaker Pelosi was asked about the constitutionality of the mandate and dismissed it. Shouldn't that be enough?

The individual mandate is a tricky animal. The law's supporters insist that it is necessary to keep people from gaming the system. This puts them at odds with an earlier version of themselves. Just a few years ago they painted insurance companies as heartless for not accepting preexisting conditions. Now they acknowledge that this is a significant cost for insurance companies.

So, what to do about it? There are multiple ways that this could be handled. One would be to reform the relationship between insurance and your employer. Currently you get a significant tax break for insurance paid by your employer. For tax purposes, this isn't even income. You cannot get this tax break if you buy your own insurance. This is a relic from the 1940s wage controls. A few changes in tax law could change this so that your employer paid you your total compensation and you could take the insurance deduction from your personal taxes. That would eliminate many of the anxieties in the current system but it would make life harder for the insurance companies. Instead of signing up large employers they would have to compete for individuals, just like auto insurance.

A different way of handling preexisting conditions would be for the government to compensate the insurance companies through taxation. This was suggested during the Supreme Court hearing.

The reason that the government went with the individual mandate is that it hides the cost and gives credit for bringing coverage to 30 million uninsured. What goes unsaid is that many of these people were uninsured by choice - young, healthy people who are not likely to need insurance for years. The individual mandate is a way of taking money from those with the least money and the least need for insurance and giving it to those who do need insurance. It is a transfer of wealth but it is coming from the poor.

When you look at it this way you wonder why any liberal would ever support the individual mandate? It is nothing but a disguised, regressive tax that is being hidden by being processed by insurance companies. Instead of being straightforward about the costs, they are being hidden under the guise of fairness - making people who will eventually need insurance pay for current costs.

Health care reform (actually health insurance reform) is such an important issue to the left that they are willing to overlook how regressive its funding is or the expansion of government power that it implies. In the modern world, nearly everything affects interstate commerce somehow. Giving Congress the power to demand participation in markets gives it unlimited power. A couple of days ago I pointed out the similarities with 16th century England where people were forced to buy wool caps in order to stimulate the wool and knitting industries. Our Constitution was written to prevent this sort of abuse.

One red herring in the proceedings is the argument that the penalty for not complying is low. There is nothing to stop a future Congress from raising the penalty or turning it into a crime. It is unlikely that this would trigger a future hearing before the Supreme Court.

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