Those of you who were tuned into the news last week are aware that the Supreme Court ruled that the Patient Protection and Affordable Care Act (affectionally known as “ObamaCare”) is constitutional under Congress’s power to tax. While I haven’t had time to look over the court’s ruling yet (though I want to and certainly will later on!), I do have some preliminary opinions on this whole “mandate” thing.
Specifically, people keep mentioning that there is a mandate that is forcing people to buy health insurance, and that this mandate is an infringement on freedom. I think that’s overblown and inaccurate. Here’s why.
The Classic Free-Rider Problem
Consider something that everyone in the country benefits from, like national defense. Keeping and maintaining an army costs lots of money, and the government can’t just say “I’ll guard your house from the British because you’ve paid for defense service, but I won’t guard your house.” National defense is an all-or-nothing deal — either the entire country is defended, or none of it is. Thus the government taxes people to pay for this national defense, whether they want it or not.
Yes, this tax represents the use of force. People living in the United States are given the not-quite-a-choice of paying to help maintain the army or being put in jail for tax evasion. Even if you don’t want a national defense, you still have to pay for it, and your only recourse is democracy — voting in new representatives to repeal national defense, which won’t happen.
But just because this tax uses force doesn’t mean it isn’t legitimate — if it weren’t for this tax, the country couldn’t be defended. Because of the collective “public good” nature of national defense, people benefit from it whether they want to or not, and thus become responsible for paying some of the cost.
Now let’s carry this a bit closer to health insurance by looking at car insurance. Everyone is forced to buy car insurance, or rather you must have car insurance in order to legally drive a car. This is also a matter of the government using force — if you choose to drive a car without insurance, the government will fine you, which is a further promise of force to take your property away from you should you not pay the fine voluntarily.
Now why is the government forcing everyone to buy car insurance (or forego driving)? It again has to do with the “public good”. Car crashes can cause massive damage to property that can be very expensive to repair, beyond the means of the average American to pay. However, car insurance can pay the couple thousand dollars by being funded from a common pool funded by everyone who drives a car.
Since everyone pays in the pool on the off-chance they might end up in a crash, the actual expenses of the person involved in the crash are manageable. Additionally, by being forced to buy car insurance, every driver makes sure to put aside a certain amount of money every year into a “what if I have a car accident” fund, meaning there is more cash available in the unlikely event of a crash.
Car Drivers and Free Riders
Now imagine if car insurance were not forced upon everyone, but instead only people who wanted to buy car insurance did so. Here, we would expect fewer people to sign up (because no one expects to be in a car crash!) and those that do willingly sign up are going to be predominately higher risk. This would mean that car insurance rates for everyone would soar back up again to be unmanageable. The entire system requires those who don’t expect to be in a car accident to still pay in, or it’s pointless.
This should make the “free-rider problem” clear. Imagine Bob thinks he doesn’t need car insurance, but then one day ends up crashing into Alice, doing $5000 damage to her car. Neither Alice nor Bob can afford the repair. Without insurance, Bob goes into massive debt, but Alice is still left without a car for weeks while Bob works to get the money. If, instead Bob had insurance, the problem could have been settled right there on the spot.
Risk Pools and Freedom
Of course, it could turn out that Charlie thinks he doesn’t need car insurance, is forced to buy the insurance anyway, and yet never gets into a car crash. While insurance companies currently try to do a good job to reduce rates for safe drivers, Charlie ends up paying for something he never needs, basically having his money taken from him by force to help those who don’t know how to drive safely. Sounds unfair, right?
Yet, Charlie actually is benefitting from the product, even if he doesn’t recognize it. First, if Bob crashes into Charlie, Charlie benefits from Bob having affordable, mandated insurance — Bob can pay for the damage to Charlie’s car without going into massive debt and delaying the payment for weeks.
Secondly, even though Charlie is a safe driver, there still is a chance he could crash into someone — Charlie still needs to guarantee that he can pay for the damage done to another car. Sure, perhaps Charlie is rich and makes sure to always have enough money set aside just in case. But how is the government going to know that’s the case and ensure it for everyone else? Likewise, how are insurance companies going to be able to fund coverage for poor drivers without safe drivers also contributing to the risk pool?
ObamaCare And The Mandate
Now what does all this car insurance talk have to do with health insurance? The answer is pretty similar — (1) there needs to be a guarantee you can cover your care if you get sick and (2) there needs to be money to pay for the coverage of people who otherwise can’t afford it.
Take Bob again. This time, not only does Bob think he won’t get into an accident, but he also thinks he won’t get sick, and thus doesn’t buy health insurance. However, Bob unwittingly ends up catching a very deadly flu and is going to die unless he gets expensive treatment. Currently, The Emergency Medical Treatment and Labor Act requires that this expensive treatment is still given to Bob even if he can’t afford it.
But who pays if Bob can’t pay for it himself or have insurance cover it? The answer is the taxpayers. Thus we have a free-rider problem — by not making sure you have the money to cover your own care, you risk charging others if you get sick. Sure, you might be healthy and at low risk of getting sick yourself, but there’s still that chance, and the easiest way for the government to guarantee everyone have the money to cover their own care is to require people to pay into insurance plans.
Secondly, consider yet another hypothetical person named Dorris. Dorris is rather poor and fairly sick from a contagious disease. If she doesn’t have access to good medical care, she’ll just end up getting everyone around her sick, creating even more medical costs in the long run. Likewise, she won’t get the less expensive preventative care needed to prevent this from happening in the first place, because she can’t afford it.
Dorris needs affordable insurance. Dorris also needs insurance companies to not turn her away because of her pre-existing condition. ObamaCare puts regulations in place to ensure that Dorris’s insurance is affordable and guaranteed, yet the only way to do so is to make sure the insurance pool has a bunch of healthy people pay in who are unlikely to get sick. However, these healthy people can rest assured that Dorris will be getting preventative care and not unwittingly infecting other people.
The ObamaCare mandate technically does not force you to buy insurance, it just requires you to pay money toward maintaining the current health care system one way (insurance plan) or another (the mandate penalty tax). Why do we need to pay this money? For all the same reason we require people to pay for national defense or pay for car insurance, they benefit from a system of affordable insurance for all, because it means less people will get sick, less taxpayer money will be spent covering people who can’t afford their treatment, and health costs will be lower overall. Like national defense, people benefit from this whether they want to or not, and thus have a responsibility to pay for it.
Secondly, people have a responsibility to ensure they can pay for their own health care costs. Even if they don’t think they’ll get sick, there still is a small chance they will, and the only way the government can guarantee you have money set aside to pay for your treatment is to ensure you are paying for it with an insurance plan or with the mandate penalty tax.
The ObamaCare bill has this mandate to solve a basic free-rider problem. Using taxes to solve such free-rider problems have long been recognized as a legitimate use of government power. Thus ObamaCare does not infringe on your freedoms.
Followed up in: The Constitutionality of ObamaCare: Background
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