Thursday, May 2, 2013

What's In a Name: The Obamacare "Mandate" and "Penalty"

No, this isn't on my usual subject of baby names. Rather, it's about the so-called mandate and penalty in the PPACA (aka Obamacare). The authors of the law knew that part of making the law work was to get more healthy people (who "voluntarily" chose not to have health insurance) to pay into the system (especially since banning denial of coverage for pre-existing conditions means you could always get coverage later). Some early drafts of health-care reform law proposals did have an actual mandate with criminal penalties for noncompliance. That proved to be politically risky (and as I'll explain would probably make the difference in the Supreme Court outcome), so they inserted a "mandate" with a "penalty" that is nothing more than an additional amount owed to the IRS on your income tax (and on top of that the IRS cannot use many of its tactics like liens or garnishments to collect the amount; about all they can do is withhold a tax refund or possibly try to sue you). Since that basically amounts to an additional income tax (and would've been unequivocally constitutional if instead they raised everyone's taxes by the penalty amount with a credit of the same sum if you have health insurance), that's what saved it in the Supreme Court (remember that in the decision they said that Congress does not have the power to require people to buy insurance, rather they can only tax you). If the mandate did come with criminal penalties for not complying, that would've most likely been ruled unconstitutional. For those who are upset that this means that Congress has new powers, it's no different than all the many other tax deductions and credits for doing certain actions (like carrying a home mortgage or having children); the only difference is it's written in a way to be "negative reinforcement" for not doing such an action rather than "positive reinforcement" for doing so (which ultimately makes no difference in the amount you pay; you pay the same greater amount for not having health insurance than if you do). It was made into a "penalty" rather than a "credit" simply because it would likely lure more people into buying health insurance by making it sound "wrong" not to purchase it, but on a de facto basis both ways would have the same monetary costs (the opposite of for example laws that on a de jure basis are neutral on the face but in reality burden and discriminate against certain groups more than others).