Thursday, June 28, 2012

Economics of the Health Care Mandate

Looks like I've been on a different planet for the past few months (not completely untrue, as I took a vacation to China recently....). I am talking about President Obama's health care reform legislation. More specifically, how a few hours ago, the U.S. Supreme Court ruled in a 5-4 decision that the health care mandate portion of the legislation was constitutional. In other words, the much-polarized "Obamacare" can continue its due course to being enacted into federal law.

So what is this health care mandate thing? Admittedly I did not know too much about it -- nor of its existence in fact -- until this past hour. Out of sheet curiosity (and not wanting to sound ignorant), I read many articles on the topic. I still have much to learn, but can at least offer an explanation of it in both plain English and economic terms.

In short, the health care mandate is part of Obamacare that is essentially a tax on those who do not have health insurance. Rationale behind this mandate is spread the cost of healthcare insurance more fairly amongst the benefactors of the healhcare industry -- since the uninsured currently still receive the same pricing and benefits without actually paying the cost, e.g. emergency services at hospitals are required by law to treat the sick regardless of whether or not they have insurance. From an economic perspective, the mandate targets the so-called "tragedy of the commons" phenomenon allegedly present in the current system. Revenue generated from this tax would supposedly goes to a government-sponsored pool that, in theory, would contribute to lower health care costs in the long term. The money will probably end up in the coffers of the government health insurance policy that citizens can purchase -- as an alternative to the private options from the likes of UnitedHealth Care, etc. All would be right and well in the world, right?

The reality is much different, and probably why the topic has become so divisive for the public as well as for the Supreme Court justices. From a legal standpoint, the constitutionality of the mandate is questionable as it effectively forces everyone to purchase insurance or face being fined by the government. Not only are the powers of federal government being debated (e.g. whether or not this topic should be left to the states) but also in how the healthcare mandate is treated as an economic entity -- should it be considered a tax, or not? If it is indeed a tax, then there would further implications on the powers of Congress and the IRS. From a civil rights perspective, the point of contention is clear -- the mandate is another encroachment on the civil liberties available to Americans, since it deprives individuals of the right to choose to purchase health insurance. This question then derives further into the penalty itself being leveraged, as some economists have argued that the fine levered of $695 to $12,500 is insignificant in the grand scheme of things. To an individual who must pay $2,000 annually for health insurance, he or she might just pay the $695 fine and remain uninsured.

Personally, I think there are 3 implications of this development that must be noted (which currently are not):

  1. Not really helping those it intends to help. The true economic burden of the mandate seems to fall on the poor, since they would be the population that would be most likely not be able to afford insurance and now must pay the fine of not having it. Adding insult to injury, they still wouldn't have insurance after paying the fine. My premise is that if the vast majority of those who can afford health insurance would elect to buy it, and therefore this tax falls on those not being able to afford it -- in other words, the poor. If you think about it for a second, who is really being helped by this mandate?
  2. The Supreme Court missed out on a chance to further augment its jurisdiction. By upholding the mandate, the Supreme Court missed an opportunity to expand its powers over the legislation of this country. The issue at is hand is as much legal as economic, since the White House evoked the interstate commerce law to support the legality of this health care mandate. Furthermore, the Supreme Court could have clarified its position on how the mandate constitutes as a tax -- and in the process revising its jurisdiction on the tax laws of this country.
  3. Do we really need health insurance in the first place? For all this discussion about the merits of the health care mandate as well as insurance, I think it would be wise to take a step back and reconsider on why we need health insurance anyway. Why can we not just go to the doctors and pay every time we have a medical condition? Setting aside the argument that preventative/proative steps like regular checkups is cheaper than only going to the doctors on a last-ditched effort, this "need-based" model would eliminate the bureaucracy and additional costs of the health insurance industry. Not to mention it would make health care more market-led, such that doctors can choose where and what to practice. It can be regarded as a all-or-nothing question: we can be like Canada and Great Britain where health care is compulsory, or a true libertarian society where individual choice is first and foremost the priority.

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