Sunday, March 25, 2012

Should We Force People to Buy Health Insurance?

One of the controversies facing the Supreme Court is whether the Health Insurance Mandate is Constitutional.  Of course, some would say it is not even a mandate.

Two neighbors live side by side.  They make the same amount of money, but live radically different lifestyles.   The Smiths spend all their money and then borrow more.  Their yard is choked with cars, boats, and jet-skis.   They have four satellite dishes, and everyone in the family (six children) have the latest smart phone and designer clothes. They have no health insurance, as they argue they are young and healthy, and besides, that $400 a month pays for another car.  And of course, they have saved nothing for retirement.  They eat out nearly every night, putting it all on credit cards, and they are all terribly obese and in poor health, despite their relative youth.

The Jones live frugally, have two children, drive older cars, don't have cable TV or smart phones, and they wear ordinary clothing.   They save for retirement and have paid down their mortgage.  They live frugally, but their finances are in order.   They have little or no debt, are fully funding their 401(k) and have health insurance.  In addition, they have started a savings plan for their children's college.

The Smiths often openly mock the Jones' for being "poor."   When they get together, Mr. Smith will say to Mr. Jones, "I guess you-all can't afford a smart phone!  Ha-ha!"   Mr. Jones just smiles and wonders what he did to deserve such boorish neighbors.

The problem is, of course, that eventually the Smiths end up in financial trouble.  Mrs. Smith or one of their kids gets sick, and with no health insurance (and no money, just debt) end up in the emergency room, which they use as their primary care physician.  The hospital tries to collect from the Smiths, but they have no money, so the costs are folded into the operating cost of the hospital, which means the rest of us, including the Jones', are paying for the Smiths medical care, and in effect, the rotting Jet Skis in their side yard.

When the Smith children are ready for college, they get more financial aid and student loans, based on "needs tests" - as it is not hard for the Smiths to show they are insolvent.

When Mr. Smith is laid-off from his job, he collects unemployment, and millions like him petition the government to extend this for two years - because they have hit on "hard times" and are "disadvantaged."

When the bank comes to foreclose on their home, the Smiths cry out that it is all so unfair, and demand a reduction in their interest rate AND a reduction of the balance on the mortgage.  And Government programs are set up to do this.   Banks, so overwhelmed by the Smiths of the world, just give in and cut $50,000 off their mortgage, without blinking an eye.

When retirement comes around, Mr. and Mrs. Smith have nothing but Social Security to rely on, and since there are so many retirees, the government cannot pay them all.  So, they decide to do a "needs test" and cut the Social Security of the Jones' so the Smiths can get more.

How is any of this fair?  And the answer of course, is that it isn't.    The Smiths are out having a grand old time, buying up a lot of crap and being fiscally irresponsible, and then forcing the rest of us to clean up their messes.  We end up paying for their medical care, paying for their houses, and paying for their children's college.  We even pay for their jet skis and penis boats, directly or indirectly, since our subsidies of other parts of their lives allow them to buy these things - and since their frequent defaults on loan obligations and the resulting losses are paid for by part of the interest on our loans.

In short, the Smiths are not "rich" at all, but just social parasites.   They are financially irresponsible and thus end up costing us all a lot of money.  And worst of all, they don't even say "thank you" but mock us, for being "poor" and not buying a lot of the crap they buy.

Taking care of yourself is not just a good idea, it is a social obligation.  It is part of the unwritten social contract that we have with one another, to not just help one another, but to not be a burden to one another as well.

The Smiths have avoided this obligation, assuming (rightly) that we will not let them fail in life, due to our humanitarian impulses.  And many people, oddly enough, feel "sorry" for the Smiths of the world.   And many of the Smiths of the world are so-called "teabaggers" who claim they pay too much taxes, which is why the finance company is towing the jet skis away - and ain't that unfair?

In most Industrialized countries, the unwritten social contract is, in fact, written.   In most of Europe, the UK, Canada, and even Mexico, medical care is nationalized, socialized, or whatever you want to call it.   For some this is deemed a "human right".   But for others, it is just making sure that people pay their fair share for medical care (through taxes) and then receive such care in the most cost-effective way (other than at the Emergency Room, which is quite costly).

Similarly, most Industrialized countries have some sort of Social Security, National Pension plan, or the like, so that people who don't save for retirement have at least some sort of pension, or at least a "safety net" that they are required to pay into.

Of course, in America, we are a little different.   We believe more in free enterprise and free markets and letting markets decide how such things should play out.   But the Smith/Jones situation is, in fact, an example of such a market decision.   Mr. Smith is a blithering idiot, but he has stumbled upon what could be considered an optimal outcome.   He lives large, spends it all, and has a wealthier lifestyle than his neighbors, who are actually wealthier.   And he gets his neighbors to pay for a lot of it.

Worse yet, since there are so many Smiths in the world, when it all goes bust, they can petition the government for relief and get more free money in the process.  Democracy fails, Heinlein wrote, when the plebes all discover they can vote themselves a raise.

And yet, we have realized, in the past, that allowing people to do this sort of thing is unfair to everyone involved.   When someone retires with no money at all, the are a burden to the rest of us.  And their life becomes brutish in short order.   So, we established Social Security - mandating that everyone who works, pay into a system that will pay them back, in retirement.   We also mandate that people who work pay into Medicare as well - so their medical needs are addressed in retirement.

Is this a humanitarian gesture?  To some extent, yes.   But it also is sound economics, in that we are forcing people to pay for their own care in later years, at least in part - so that they are not a 100% charity case when they retire, and thus a total drain on everyone else's resources.  And as I noted in an earlier post, if you live to an average age, you basically get back your Social Security money, plus a few percentage points in interest.

Our country is steadfastly against nationalized medicine, perhaps rightly thinking that government bureaucracy and medicine don't mix.  Of course, the private-sector model of medicine has its own problems - and let's face it, we don't have a totally "free market" model of medical care in this country, and never will, unless Medicare and Medicaid are abolished.  The government is already the largest player and payer in our medical system.

So instead, we have come up with this crazy idea that people should be forced to buy health insurance.  Well, not forced, in the traditional sense, but encouraged very strongly.   If you buy health insurance, fine.  If you don't, you are assessed a "fine" or "tax" depending on your point of view.  In a way, this is not a radical departure from what we already do.

For example, if I buy health insurance, the premiums are deductible from my taxes, which means I pay less in taxes than the fellow who doesn't buy health insurance.  Under existing law, we are "fining" or "taxing" people who don't buy health insurance for themselves.  Of course, we are also fining people who are provided with health insurance by their employer, which would not happen under this new law - only those who refuse all health insurance will be taxed or fined. 

(From a deduction point of view, of course, this makes sense.   Someone who gets "free" health care from their employer is getting an untaxed benefit, so it is justice that their tax bill should be a little higher than mine - where I have to pay for this benefit out of my own pocket).

Of course, one problem with deductions is that they only reduce the taxes of people who are working and making a lot of money.   Moreover, they favor the rich, who get a 35% rebate on their health care costs, in the 35% bracket, versus 15% for us peons.

Well, then, why not sweeten the pot and make it a tax credit?  That would certainly be Constitutional - after all, Congress can grant tax credits for buying electric cars, why not health insurance?   That is an interesting approach as well, and in fact, such an approach could actually pay poor people to buy health insurance.  A tax credit, even if you owe zero taxes, can result in your getting a check back from the Government.

But there are two problems with that approach, too.  First, it would mean we would be paying a LOT of health insurance premiums - the bill would be staggering.  But I suppose you could limit the deduction to a certain amount, so that people didn't just go out and buy so-called Cadillac plans.  Second, since a lot of people wouldn't have the foresight to understand how tax credits affect their taxes, they would not buy the health insurance, claiming they could "not afford the premiums" on a monthly basis, even though they would get all that money back on their taxes.

But it is an interesting idea - if you allowed, say $2500 to $5000 a year tax credit for health insurance, insurance companies might scramble to provide a basic coverage plan that could be paid for, in one lump sum at tax time - perhaps.

So, instead, they came up with this so-called mandate.   Like I said, it really isn't a mandate, as no one is going to jail if they don't buy insurance.   But your taxes will be higher.  And you might go to jail if you don't pay your taxes (big surprise there, right?)   Will this work?  Is it Constitutional?

The very poor end up costing us all a lot of money in terms of health care costs.   They tend to use emergency rooms as their doctors, and they leave huge unpaid bills at hospitals, which we all end up paying for, in terms of higher health care costs.   This so-called mandate approach would make them choose whether to pay for insurance or to pay the government, the latter of which would recoup some of the costs of uninsured patients.  It might work.

Is it Constitutional?  Well, that remains to be seen, and with a polarized and politicized Supreme Court, the ultimate decision may have more to do with party politics than any real reading of the Constitution.   Act shocked, and then read the Dred Scott decision, and then sober up as to what this country is really all about.

The reality is, this is not a mandate but a tax.   Granted, like most taxes, it is calculated in a convoluted manner.  Just as my taxes may be lower than yours, because I can deduct my health insurance premiums, a person who buys health insurance under this new law will get a tax break.  Those who do not, get a tax increase.

The opposition, of course, calls this a "fine" and thus a "mandate" to obtain coverage - coercion by the government, "forcing you to do things" you don't want to do.

And yea, that sucks, but wake up and smell the coffee.   If you work for a living, you are forced to pay Medicare and Social Security taxes.   Your employer is forced to match these.  And if you don't pay these taxes, you end up going to jail - simple as that.

Again, it was decided that Congress should force people to pay for their retirement or at least some kind of safety net, rather than let people just rot in the streets ("freedom!") and have the rest of us have to care for them through charity, welfare, or other taxpayer-funded programs.

So to me, anyway, it seems clear that the Constitutional mandate for this "mandate" clearly exists.   If  this is unconstitutional, then so is Social Security and Medicare.

But then again, some folks think those two programs should be abolished as well.....