As an economist, perhaps I shouldn’t be writing this piece. In delivering the opinion of the Court on the Accountable Care Act, Chief Justice Roberts makes an indirect attack on economists: “To an economist, perhaps, there is no difference between activity and inactivity…But the distinction would not have been lost on the Framers, who were ‘practical statesmen,’ not metaphysical philosophers” (p.24). Nonetheless, I will turn here not to the practical issues decided by the court—such as how the individual mandate is a penalty, not a tax that must be paid before people can sue, but is a tax, not a mandate, for being held constitutional, while penalties on states that forgo a Medicaid expansion are unconstitutional because they represent a “shift in kind, not merely degree” (p. 5). Instead I turn to metaphysical issues surrounding many quandaries that remain, such as how the new health laws can be administered, how budgets can possibly be sustained, and whether we can solve any of this mess without some bipartisan cooperation.
In upholding the health mandate and striking down the requirement that states expand Medicaid coverage or lose funds, the Chief Justice cites CBO figures of $4 billion a year for the revenue impact of the mandate (p. 33), $100 billion a year for the cost of the Medicaid expansion (p.46), and $3.3 trillion as the Medicaid funding that was threatened if states did not comply (p.51). The size of these numbers raises the question of whether the fight over this particular individual mandate was all it has been cracked up to be, even relative to the overturned requirement that states accept the Medicaid expansion. At one level states are fully funded for a while to accept the expansion, but some may fear the long-term costs. Then, again, why not just let Medicaid recipients go onto the federally funded exchanges? It will be interesting to see what CBO estimators make of this shift.
The size of the mandate is also small relative to the employer mandate that was not a part of this court case and to the cost of health insurance more generally. Much of the mandate’s impact, in my view, would come from its influence on people who really hate to pay penalties (oops, taxes that we call penalties or mandates), regardless of whether they might make economic sense.
An upcoming issue with the mandate is its enforcement. In a recent article in Tax Notes Magazine, law professors Jordan M. Barry and Bryan Camp lay out the limitations IRS would have assessing liens and levies on those owing the additional tax at the end of the year, concluding that many resistant taxpayers can avoid paying any penalty they owe. It’s long been understood by tax professionals that collecting taxes is better done as the income is earned and before it is spent elsewhere.
A separate tax collection problem arises with respect to subsidies that will be available to those on the new health exchanges. Households are given tentative subsidies based on tax data that can be over two years old. When household income or employer or marital status or unemployment or number of dependents changes, the taxpayer can apply to have the amount adjusted. There are very limited ways of auditing these revised claims, so taxpayers can end up paying another set of penalties when later they are found to have gotten too much assistance given their incomes. Whether that type of setup can be administered with any degree of fairness or accuracy sits right below the radar screen.
Nowhere, as best I can tell, did the court address (or need constitutionally to address) the “metaphysical” budget issue of why health reformers imposed “penalties” on individuals not buying insurance, states not maintaining or expanding Medicaid coverage, and employers not providing insurance. It’s simple. Absent constraining costs, which were not a principal focus of the act, federal taxes were the only alternative.
The health care system, however, had become so expensive (at 18 percent of GDP and 21 percent of personal income) that no member of Congress, Democrat or Republican, would ever suggest tax rates high enough to cover those costs for most people. In effect, the Court may suggest that elected officials can get around their constitutional problems by taxing and subsidizing more, but, as a practical budgetary matter, they can’t.
Underlying all of this are the uninsured. It doesn’t matter whether President Obama or Governor Romney wins the election. There is no way to go back to a system that left tens of millions of people uninsured and the number rising every year.
I see no way out of this mess without bipartisan efforts that are currently lacking. For instance, the individual mandate (penalty, tax, friendly persuasion, whatever) could be better administered, and a more powerful incentive for purchasing health insurance provided, by making coverage a condition for getting certain other benefits such as the child credit or itemized deductions. This type of design would be even less likely to raise any constitutional objection and be consistent with both Republican and Democratic principles. Meanwhile, any subsidy system, whether on the exchange or elsewhere, needs to be better designed so that enforcement isn’t so onerous on the taxpayer or the IRS. Most importantly, of course, the dilemma that is health care can’t be solved without forcing each government health program or tax subsidy to face some budgetary constraint. But I guess those are the types of things we metaphysical philosophers worry about.
This column was originally published in the Fiscal Times and is reposted with permission.
One of the most frustrating aspects of the health reform debate has been the extent to which many legitimate questions about what might work were ignored in favor of fights over ideology. As advocacy triumphed over expertise, those who promised more than they could deliver fought with defenders of an unsustainable status quo. At times, it was like watching two groups argue over whether to make a building entirely of steel or entirely of glass when neither approach works by itself. One result is that the new health reform still needs a lot of fancy structural work to stand and extensive plumbing to be usable.
Consider individual mandates. The term “mandates” is misleading (see http://www.urban.org/publications/1001325.html). The question is usually framed as whether we can force an individual to purchase insurance. But these mandates don’t really make anyone do anything. The more fundamental issue is whether we can or should penalize those who do not buy health insurance. If not, additional subsidies are the sole way left for government to encourage people to obtain insurance. And that gets very expensive very fast. If you buy my logic, individual mandates look more like a Republican alternative to higher taxes and larger subsidies than a Democratic push for larger government.
Since this key point wasn’t ironed out in the health care debate, it’s now up to the courts to decide. Thirteen states, led largely by Republicans, are asking the judiciary to determine whether government can require some of us who don’t buy health insurance to pay some tax. (Nobody is contesting whether government can force all of us to pay tax to provide health insurance for those who don’t buy it for themselves.)
If Congress hadn’t childishly decided that compromise is for sissies, this court battle could have been avoided. Instead of imposing a separable penalty or tax on individuals, health reform law could simply have denied the uninsured some other government benefits, such as child credits, subsidized interest rates on their student loans, mortgage interest deductions, or other supports. For those too poor to pay, batching benefits this way would have been administratively simple too: low-income folks could sign up for health benefits as a condition of getting their food stamps (now called supplemental nutritional assistance) or other benefits. All government subsidy programs set conditions for participation, so there would be no basis for a court battle.
Now if the Republicans win the court battle, which I’m told is highly doubtful, the law will probably just be amended to move in the direction I suggest. But there’s a practical reason to do it no matter which way the court battles go. Using current benefit programs to ensure compliance and penalize noncompliance makes it unnecessary to try to collect money from people who don’t buy insurance. Reducing future benefit amounts is far simpler than tracking down non-payers and trying to get money they may not have. The IRS learned this long ago when it adjusted withholding tables to ensure that most people would have enough income tax withheld and no more would have to be collected at year’s end.
Besides keeping taxes lower for all, penalizing individuals who don’t buy insurance would also
- be fairer to those who buy health insurance who now have to pay (through their taxes) the full freight for those with equal incomes who don’t;
- require people to cover some of the cost of the backstop “insurance” that Medicaid or new health exchanges provides when health care bills get too big to pay out of pocket;
- relieve some pressure on employer mandates, which work like minimum wage increases to discourage employment; and
- stick to reform’s promise of stopping insurance companies from excluding those with preexisting conditions—a reform generally favored by both Democrats and Republicans. Without penalties, the preexisting condition clause would encourage people to avoid buying insurance until they become sick
If political theater hadn’t overtaken horse sense as much as it has, Republicans could have compromised with Democrats on the design and use of individual penalties without either side caving on their key principles. They’d both realize that individual penalties help avoid some of the higher taxes, higher subsidies, higher minimum wages, exclusions for preexisting conditions, and other inequities born of alternative approaches. Legitimate conservative and progressive principles aren’t the health care reform problem now as much as lack of a shared interest in integrating these principles into a system that works.
Louisville, Kentucky, is a nice town. I’m biased—I grew up there. It’s not South, North, East, or West in make-up, but a bit of all four. It is home to horse racing and bourbon, but also to the world’s largest producer of Braille books and the Louisville Slugger baseball bat.
Louisville is back in the news these days because its plan for integrating schools, like Seattle’s, was overturned recently by the Supreme Court. However divided is opinion over this decision, it should force us to look more deeply into what a well-integrated society means and requires. Public debate should range far beyond the use of race as a factor in determining which kids can go to which schools. Besides school systems, we should be challenging institutions ranging from universities to charity and corporate boards to governments on ways to diversify that go well beyond simple ratios of blacks to whites or females to males.
Return to Louisville. In 2000, it achieved what many major cities around the nation must envy. It integrated into a single jurisdiction the former city of Louisville, with its one-third black population, with the surrounding Jefferson County, which has a much larger concentration of whites. That’s right. They merged, and the suburbs basically agreed to work with the inner city on issues ranging from school integration to money per pupil to access to government support services. Now this may only be one step, but it could matter more to minorities in Louisville than whatever change in its schooling formula the recent Supreme Court decision might trigger.
Schools can be integrated in many ways besides racially. In Alexandria, Virginia, for instance, the high school integration problem was solved simply by merging all the high schools into one. A 2000 movie named “Remember the Titans” chronicled that event (at least as well as Hollywood could do it; Alexandria, next to the nation’s capital, was described as a small southern town where football was a way of life).
Many school systems can also use basic statistics better to ensure the well-being of all students. The new court decision doesn’t prevent school districts from tying admission or access to alternative schooling to family need or income or homeownership or housing value—replacing racial integration with class integration, but almost certainly promoting racial equality in the process. Even more to the point, districts should be measuring the improvement of every student in every environment, constantly re-jiggering requirements, school structures, quality of teachers, number of teachers’ aides, early childhood education, and whatever is under their control to serve all our children.
We’ll never integrate society solely by pressuring primary and secondary schools. That’s why major universities that claim to have integrated are now coming under greater scrutiny. Harvard or Yale might have little problem taking in the children of doctors and generals and lawyers who also happen to be minorities, but, even with all their intellectual firepower, most elite schools provide little data on their record in serving those from poorer or disadvantaged households. Some recent studies, for instance, point to the low percentage of students at these schools who were admitted with income-related Pell grants.
If we really want an integrated society, we should re-engage the working world, not just schools, to meet that challenge. Consider boards of directors. My colleague, Francie Ostrower, recently chronicled the low participation of minorities on charity boards—even some of those serving minorities. As for corporate boards, the glass ceiling is well noted, but even when it is cracked, boards often tap the same minority person or woman over and over again rather than reach out to more people from largely excluded classes.
Closer to home, residential segregation lives on, thanks to various ordinances, such as minimum size housing or lots. Some rules prevent two families from moving to a single house in a neighborhood where schools are better—even when their combined families might have fewer total members than a single family in a similar home. How about zoning that encourages McMansions to be built in high—land value areas to the exclusion of high-density developments that the middle class could afford?
Moving toward a truly integrated society—like combining Louisville and Jefferson County into a single jurisdiction—requires hard work, creativity, and a reshuffling resources as opportunities arise. A single statistics or ratios can’t be the measure of success. Whatever else the recent Supreme Court sets in motion, let’s hope it catalyzes a real public discussion of the many dimensions of an integrated society and how to promote opportunity for all.