McConnell’s Cruel Health Care Penalties Are Humbug Pure and Simple

This article first appeared on the Dorf on Law site.

The Republicans' ongoing effort to take away health care coverage from tens of millions of people is probably only on hold.

In any event, their attempt to pass the Trump-McConnell bill has just "collapsed," because Senators Jerry Moran and Mike Lee have joined Rand Paul and Susan Collins in publicly opposing the bill.

That is a very good thing, of course, and I should take a moment to applaud Senator Collins, whom I have bluntly criticized many times over the last few years.

On this bill, hers was a public position that actually mattered, not a "free vote" or a statement of "concern" that then was not backed up by action. Because the bill was unconscionable, she took a public stand against it. I hope that she stands up like this again in the future, on health care and other issues.

Unfortunately, the other three Republican opponents of the bill—Paul, Moran, and Lee—did so because the bill was not harsh enough. Apparently, Senator Ted Cruz's add-on to the bill, which saw him explicitly choosing full public funding for some health care recipients in order to give insurers the "freedom" to offer junk insurance policies to others, was too government-y for Paul and the others.

GettyImages-813943992 Ginger Rae is given a checkup by registered nurse practitioner Rachel Eisenberg at a Planned Parenthood health center on July 13, 2017 in Wellington, Florida. The U.S. Senate has released its revised health care bill on Capitol hill; the plan includes cutting funds for Planned Parenthood, the country's largest network provider of women's health care, for at least one year. Planned Parenthood Federation of America President Cecile Richards responded to the new bill by saying, "With this latest version of Trumpcare, Americans will pay more and get less, but women will pay the biggest price of all. Slashing Medicaid, cutting maternity coverage, and blocking millions from getting preventive care at Planned Parenthood would result in more undetected cancers and more unintended pregnancies. And it puts moms and their babies at risk. Now is the time for every person who cares about womenÕs health and access to affordable, quality care to speak out and join this fight." Joe Raedle/Getty

All of which means that Republicans' efforts to take away health care from vulnerable people is currently in limbo only because one of them was appalled enough to say no while three said, "Can't we make this even worse?" Who knows how many Senate Republicans will sign onto something that the hardliners could support?

But there is another aspect of the Trump-McConnell bill that is worth considering, which is the Republicans' strategy to replace the dreaded "mandate" to buy health insurance. It turns out that people's freedom to contract is sacrosanct to Republicans, unless that freedom must be sacrificed in order to destroy Barack Obama's Affordable Care Act (ACA).

Although it now seems a lifetime ago, the first Republican assault on the ACA was based on the idea that the government should not be able to take away people's freedom to abstain from buying something. In very short order, we were hearing virtually the same talking point from everyone on the right, which went basically like this:

Obama wants to force people to buy health insurance, because liberals think that everyone should have health insurance and that people will be glad that the paternalistic government forced them to do something for their own good.

Well, broccoli is good for people, and if people were forced to eat it, they might end up being happy that they lived longer and healthier lives. But the government should not have the power to force people to eat broccoli!

That argument is utterly fallacious for multiple reasons that are not relevant here. Although the ACA survived both of the challenges that reached the Supreme Court, a majority of five justices actually did endorse the broccoli argument, saying that the Commerce Clause does not empower Congress to require people to buy something.

The ACA's so-called personal mandate was actually not a requirement to buy (much less eat) the health insurance equivalent of broccoli. It instead gave American adults a choice: buy ACA-compliant health insurance or pay a fee/tax/penalty/exaction.

In fact, the amount of money involved in the tax penalty was so low that a person who chose not to buy insurance was far ahead of the game in terms of money out of his pocket (until he became ill, of course).

But the broccoli-inspired issue that bothered the Rand Pauls of the world was that the government was supposedly forcing people to engage in a transaction that they did not want to consummate. Big Brother was forcing people to do something that they did not want to do!

The degree of coercion involved in the ACA tax penalty was certainly much less than the proverbial gun to the head (which is, in other contexts, conservatives' preferred definition of what it means to be "forced" to do something), but it was enough to drive Republicans crazy. They have even recently talked about cutting the IRS's funding (even more than they already have), specifically to prevent it from collecting the tax penalty.

The problem remains, however, that the logic of a universal private system of health insurance requires people to buy health insurance when they will not need it. The logic is by now familiar, but it is worth repeating.

If people can sign up for insurance even when the have a preexisting condition—which is one of the most popular aspects of the ACA, and which Republicans have at least claimed that they support—then they will have every reason not to sign up until they are sick.

No insurance system can work unless people who currently do not need to draw benefits are paying into it. This means that any legal framework that could allow for-profit (or even non-profit, come to think of it) companies to provide affordable insurance to people has to have healthy people paying premiums.

No auto insurance company would allow tow-truck drivers to sell insurance to people who have just totaled their cars, because the insurers have to rely on the revenues paid by people who have not yet been in accidents.

And here is where things become especially interesting. In both versions of the Trump-McConnell bill, Republicans would have replaced the personal mandate with a six-month waiting period. That is, the most recent version of the bill says (in sec. 206(c)(3)) that insurers cannot issue policies to people who have not had at least twelve months of continuous coverage until a six-month period has passed.

It is a clever provision, because it essentially says to a person: "If you want to go without insurance, you're free to do so—if and only if you are willing to wait six months the next time you decide to become insured."

In place of the choice between paying a tax penalty or buying insurance, then, the bill confronts a citizen with the risk of being unable to buy insurance when he wants to do so, if he exercises the free choice to be uninsured today.

I would think that many economists and other empiricists would have a blast in trying to calibrate the effectiveness of these two approaches. I have no intuition about this, because it involves trying to predict how many young people (who tend to think of themselves as immortal) are going to be more worried about saving a small penalty versus those who would panic at the idea of being unable to buy insurance coverage for six months. Who knows?

As a matter of freedom, however, it is difficult to see how this legal imposition from Big Brother is meaningfully different from any other. The proposed law says that a health insurer "shall impose a 6 month waiting period," whether the insurer wants to do so or not, and regardless of whether the market would (in the absence of this requirement) see insurers offering policies to people who have been uninsured for less than six months.

Indeed, the question of effectiveness cuts against the liberty interest. If the six-month mandate is actually better than a tax penalty at inducing people to buy health insurance that they otherwise would not be interested in buying, then Big Brother has more effectively impinged on their free choice than by imposing the tax penalty.

One could argue, I suppose, that the tax penalty involves paying money, but that has never been the necessary or sufficient condition to deem something to be anti-freedom. And even if it did, the six-month waiting period works precisely because it forces people to ask themselves a money-from-my-pocket question: "What is the risk-adjusted cost of being uninsured for six months, compared to the certain cost of the tax penalty?"

In the model of human behavior favored by economic libertarians, people rationally make choices by weighing just this kind of trade-off: Is a 0.01 percent chance of being diagnosed with cancer during the waiting period worth the savings from not paying premiums?

Truly free choice, in this narrow and ultimately illogical view of the world, would allow people with different degrees of risk aversion to make different choices.

In an nutshell, here is how the two systems deal with people who would be tempted to withdraw from the market for health care:

ACA: You don't want to buy health insurance? Cool. Pay this tax penalty.

Trump-McConnell: You don't want to buy health insurance? Cool. Face this potentially disastrously costly possibility, which we are explicitly preventing you from insuring yourself against.

Is one of these approaches more like forced broccoli-eating than the other? It is difficult to see how. The ACA recognizes that health insurance markets will only work if enough people are insured, and so does Trump-McConnell. Both try to influence people to do something that they currently find unappealing by giving them constrained choices, preventing willing insurers from offering products to willing customers unless a legal hurdle—one that carries a government-imposed cost—is met.

Is the problem that the ACA's system allows the government to keep the money from the tax penalties? No, because the supposed argument for "freedom" is not about funding Leviathan but about coerced choices by the government.

In any case, I would be willing to bet a great deal of money that Republicans would not have been any less opposed to the personal mandate in the ACA even if the revenues were used to fund a prize for an essay contest on the wit and wisdom of Ronald Reagan.

It was always difficult to escape the sense that the broccoli argument— the idea that the government must never be permitted to coerce people to do something that they would not do in a truly free market— was pretextual nonsense.

That Senate Republicans voiced no concerns about their proposed six-month waiting period confirms that they know that health insurance laws must limit people's choice in order to prevent opportunistic behavior.

They just needed to dress up their coercion in different garb, to be able to say that they are not imposing a mandate. That is a labeling exercise, not a principled defense of freedom.

Neil H. Buchanan is an economist and legal scholar and a professor of law at George Washington University. He teaches tax law, tax policy, contracts, and law and economics. His research addresses the long-term tax and spending patterns of the federal government, focusing on budget deficits, the national debt, health care costs and Social Security.

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