Supreme Court: Let Them Eat Broccoli
When the Supreme Court decided last week that the federal government can ‘tax' you if you don't purchase health insurance, the court narrowed choices for Americans in ways that go well beyond the individual mandate.
In order for a mandate to work government must define what it is we are required to buy. In its new law, the Obama administration defines health insurance in such a narrow way compared to what's on the market now that some Americans who currently have insurance and wouldn't think of going without it will soon be considered uninsured and have to purchase something else or pay a fine/tax. And the evolution of the health insurance market, including experimentation with new kinds of coverage that might help reduce costs, will from now on be at the discretion of the government.
As we contemplate our freedoms on July 4, it's worth considering how this mandate will work by reflecting on the question Justice Scalia asked the government's lawyers, namely if the federal government can force people to buy broccoli. Once given that power, the government can also tell you what qualifies as broccoli. Maybe that stuff you buy in packages in the frozen food section labeled ‘broccoli' doesn't really qualify. Maybe only broccoli grown on ‘sustainable,' local farms under conditions the government deems organic will qualify as the right kind.
If you think that's outlandish, consider the power the federal government now has to define what constitutes health insurance. Congress took for itself the ability to require that people only buy insurance that provides a minimum of ‘essential health benefits.' So far, Congress decrees, minimum health insurance is something that you must purchase that encompasses coverage in 10 broad areas, including dental and vision care for children, wellness services, rehabilitative services and devices, substance abuse treatment, prescription coverage and more. Congress also gave the Department of Health and Human Services authority to further define and require coverage within those categories.
At hearings held by the Institute of Medicine on what coverage HHS should compel, a spokesman for the National Kidney Foundation pleaded for mandatory coverage of multiple kidney transplants per patient, while an obstetrician argued for mandatory coverage of nutrition counseling. Folks from Connecticut wanted to ensure that treatment of Lyme disease was part of mandatory coverage. No one explained how people or firms are supposed to pay for all of this. After several hours of hearings, the head of the IOM commission complained that, "We have an impossible task."
The new law potentially makes obsolete a fast-growing type of policy that features high deductibles at low costs. This insurance requires patients to pay for many basic services themselves but also protects them from catastrophic bills. Businesses often offer this insurance backed by deposits they make into health savings accounts that workers use to pay bills, and by pre-tax contributions by workers into so-called flexible spending accounts. The idea is that workers are more likely to spend the money wisely and carefully when it is theirs. Today, some 45 million Americans with insurance have these sorts of accounts.
But the Obama administration and the Democratic Congress seem intent on foreclosing them as a choice. According to Cato Institute scholar Michael Tanner, in the president's book the Audacity of Hope, Barack Obama derided the need for health savings accounts by dismissing the idea that people in traditional insurance plans actually overspend on health care and would do better if they have an incentive to save. The President seems to think naively that people will only purchase what they need, even when there's little direct cost to them for obtaining more.
The new law has reduced the amount of money you can set aside in health savings accounts, narrowed the products you can buy with them and doubled the penalties the IRS can impose on you for unauthorized purchases made through these accounts. There seems little hope that effective consumer-directed insurance can survive. Obamacare requires that an insurer pay for at least 60 percent of all health care costs in a plan in order for it to meet the minimum basic requirement. Many high-deductible plans don't qualify, which is why some insurance firms have already stopped offering them.
When you total up the requirements and restrictions on what now constitutes adequate health insurance, no wonder that many small firms keep telling us that they will not expand beyond 49 employees because doing some makes them subject to the complexities and penalties of Obamacare.
Still, the law attempts to entice smaller firms to offer approved insurance by giving them tax subsidies, as long as the business masters the complexities of the law and subjects itself to additional scrutiny from the chief enforcer of the law, the IRS. But if you think complying with our tax code is tough, wait till you see what it takes to earn the credits.
According to the National Federation of Independent Business' tax credit calculator, if you are a firm with 14 employees, 12 of whom are covered by insurance that's acceptable to the government, and if the average annual wage of your workers is $36,000 and you spend $6,000 per worker on health insurance, you qualify for a $616 per worker insurance subsidy (got that?). But if only 12 of 17 workers have the insurance and all other costs remain the same, your subsidy drops to $196 per worker. If the average annual wage of your workers rises to just $40,000, your entire subsidy disappears. Understand?
The Congressional Budget Office estimates that about 4 million Americans will pay a penalty for failing to purchase insurance. Many already covered by insurance probably won't sympathize much with that 4 million. But the real impact of Obamacare is that it gives to the federal government the power to define insurance for all of us. The government is using that to demand something different than what many Americans possess.