This page was last updated on June 29, 2015.
Why does Obamacare have an individual mandate forcing individuals to purchase healthcare insurance? To answer that question, we first need to understand real-world insurance.
When you purchase insurance of any kind, you and the insurer make bets. Your bet is the premium you pay will be less than the claims you make. The insurer’s bet is the premium you pay will be more than the claims you make. The items covered by a policy and the likelihood you’ll make claims – as well as the potential amount of those claims - determines your premium, just like with auto insurance. The more items covered by a policy, the more expensive it is. The more likely it is you’ll file claims, the more expensive the policy. Despite having this information, no one can predict with 100% accuracy an insured’s future claim activity. To help mitigate the risk, all medical insurance risk pools end up with a mix of participants, ranging from those who have low risk factors and make few claims to those who have high risk factors and make a lot of claims.
What we call medical insurance today is not really insurance; today’s medical insurance is really a hybrid of insurance and prepaid healthcare. Until sometime after the 1960s, we usually referred to healthcare insurance as “major medical.” This was because healthcare insurance covered only major medical expenses (like surgery) and emergency treatment (like treatment for injuries suffered in an accident) that could be financially catastrophic to a family. When you went to the doctor’s office for “minor” afflictions, you paid for the visit and treatment directly out of your own pocket. Today, however, healthcare “insurance” also tends to cover routine visits to the doctor’s office, prescription drugs, et cetera. Look at it this way. How much more would you have to pay for auto insurance if the policy also covered routine maintenance (new tires, oil changes, et cetera) and preventive maintenance (inspections, 6,000 mile checkups, et cetera)? Insurance of all kinds works best when it’s used to protect against unlikely events with financially catastrophic results. Using insurance to pay for routine, predictable events makes no sense.
Now let’s compare real-world medical insurance with the politics-driven Obamacare. With Obamacare,
· All policies must provide the same 10 “essential health benefits” even if you don’t want some of those benefits or a benefit isn’t relevant for you. For example,
· All Obamacare “plans must offer pediatric dental and vision care for children 18 and under.”
· Plans must provide “Free preventive services … without charging you a copayment or coinsurance. This is true even if you haven’t met your yearly deductible.” These services aren’t “free,” of course; you pay for them via a higher premium.
· In 2011, the Obama Administration added “contraceptive methods and counseling for all women, as prescribed by a health care provider to the list of “free preventive services.” It’s interesting Obamacare treats pregnancy like a disease. In case you’re wondering, Obamacare doesn’t cover contraceptives for men. Sounds like a “war on men” to me.
· Insurers are not allowed to ask about your medical history and “can’t turn you down or charge you more because of your pre-existing health or medical condition like asthma, back pain, diabetes, or cancer.” Coverage for a pre-existing condition is not insurance; it’s a handout. It’s like buying a homeowner’s policy after your house burns down and expecting the insurer to pay for a new house.
· Insurers can’t charge you more because of your sex. Like it or not, females as a group file more claims than men meaning females are more expensive to cover. For example, while a large number of women will file claims related to childbirth, no men will. In addition, as noted above, Obamacare covers “contraceptive methods and counseling for all women” but not for men. I’m sure someone will point out some males will file claims related to prostate disease, but no women will. True, but prostate disease is a disease; a “complication-free” pregnancy – if there is such a thing - is not. In the real-world, this risk factor results in higher healthcare premiums for females, just as their lower driving risk factor results in lower auto insurance premiums. Under Obamacare, however, male policyholders subsidize females because the law requires insurers to charge the same regardless of sex. Again, it seems Obamacare is waging a war on men.
All of these benefits drive up the premiums an insurer must charge to provide coverage. Curiously, while Obamacare does not allow discrimination based on health and sex, it does allow age-based discrimination. That is, the older you are, the more you pay for exactly the same coverage. Obamacare also allows discrimination based on where you live. For example, a person living in a community with a high cost of living may a have higher premium than someone who lives in a community with a lower cost of living.
On top of this, Obamacare includes fees, taxes, and whatever on the healthcare industry that increase the costs insurers must pass along via higher premiums.
Let’s go back to the question of why Obamacare needs an individual mandate to survive. No healthy person in his right mind would sign up for Obamacare. Why would an otherwise healthy person pay insurance premiums – especially for a one-size-fits-all, full-service policy - for an extended period of time when an insurer must cover him whenever he applies? For example, healthy Bob gets in a nasty car accident and will rack up medical charges far beyond his ability to pay. Under Obamacare, all Bob needs to do is apply for insurance on the operating table and he’s covered. After Bob recovers and returns to good health, he could drop the insurance then pick it up again when needed. Without a significant number of healthy participants paying premiums while making few claims, Obamacare would be left with high-cost participants. In this case, the required premiums would be too high for most of us to afford. To survive, Obamacare needs a load of low-risk participants, especially young males, to subsidize everyone else. That’s why Obamacare needs the individual mandate for its survival.
National Federation of Independent Business v. Sebelius
In National Federation of Independent Business v. Sebelius, the Supreme Court of the United States (SCOTUS) ruled the Obamacare mandate forcing individuals to purchase medical insurance was constitutional. Obamacare is also known as The Patient Protection and Affordable Care Act (H.R. 3590 - 111th Congress; Public Law 111-148). Please read my papers “Healthcare” and Obamacare – King v. Burwell for more general information on the topic.
The petitioners (including 26 states) challenged Obamacare’s individual mandate requiring individuals to purchase healthcare insurance or pay a penalty (SEC. 5000A). Subsection (a) states,
“An applicable individual shall for each month beginning after 2013 ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage for such month.”
Subsection (b)(1) states,
“If an applicable individual fails to meet the requirement of subsection (a) for 1 or more months during any calendar year beginning after 2013, then, except as provided in subsection (d), there is hereby imposed a penalty with respect to the individual in the amount determined under subsection (c).”
Subsequent subsections describe the magnitude of the penalty and how an individual pays the penalty (aka “shared responsibility payment”) via his federal income tax return. It’s important to note the actual Obamacare law refers to the payment as a penalty, not a tax, and HealthCare.gov refers to the payment as a “fee.” Elsewhere in the law, politics drove the use of “fee” and “tax.” For example, it was okay to use “tax” when a provision referred to “high-income taxpayers,” “elective cosmetic medical procedures,” and so on, but “fee” was used elsewhere. The terminology was not an accident; despite promises of no tax increases for the middle class and the poor, President Obama and the fully Democrat-controlled Congress broke that promise less than three months after he took office. Effective on April 1, 2009, a federal tobacco tax increase ranged from 158% (cigarettes, pipe tobacco, chewing tobacco, snuff) at the “low” end to 2,159% (roll-your-own tobacco) and 2,653% (small cigars). As every anti-smoking report tells us, tobacco use is skewed to the lower end of the income scale; the very people Mr. Obama claimed wouldn’t see tax increases. Obamacare proponents knew the people most likely to be hit with the penalty would be at the lower end of the income scale, just like the tobacco tax. Since Obamacare proponents didn’t want to be seen increasing taxes on the poor yet again, they were determined not to call the penalty a tax, at least not in public.
Obamacare proponents are leftists, but that doesn’t make them stupid. At least a few of them recognized forcing individuals to purchase healthcare insurance was unconstitutional, making the “payment” unconstitutional. Without the club of a fine, however, Obamacare authors knew not enough young and healthy individuals would buy in and Obamacare was financially doomed without them.
The petitioners argued the Constitution does not give Congress the authority to force an individual to purchase a good or service. The Obama Administration argued the mandate and the penalty were covered by the Commerce Clause and the Necessary and Proper Clause and/or “Congress’s power to ‘lay and collect Taxes.’”
The Court rightly ruled for the petitioners regarding the Commerce Clause and the Necessary and Proper Clause. In the case of the Commerce Clause, the opinion’s syllabus says, “The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it.”
It was another story when it came to taxation. It started out well when Chief Justice John Roberts wrote, “The Affordable Care Act describes the ‘[s]hared responsibility payment’ as a ‘penalty,’ not a ‘tax.’” Further, in addressing a ruling on a different point (applicability of the Anti-Injunction Act) by the Fourth Circuit Court of Appeals, Mr. Roberts concluded the penalty was not a tax.
Things went south quickly, however, when Mr. Roberts subsequently flip-flopped and rescued Obamacare by calling the penalty a tax with respect to the Constitution. You read that right; in one part of the opinion the penalty is a tax, but in another part it is not a tax. As Justice Antonin Scalia noted in his dissent (pages 27 & 28), “What the Government would have us believe in these cases is that the very same textual indications that show this is not a tax under the Anti-Injunction Act show that it is a tax under the Constitution. That carries verbal wizardry too far, deep into the forbidden land of the sophists.”
Since Congress has the authority to “lay and collect Taxes,” Mr. Roberts and the four consistently-leftist justices ruled in favor of the Obama Administration and saved Obamacare.
As bad as this decision is even if it were limited to Obamacare, its potential for damage down the road is even worse. The effect of the decision is the federal government can force individuals to purchase anything as long as the law – or the Supreme Court - calls the penalty for noncompliance a tax.
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