Update: Health insurance credits and penalties
by havoc
In a post a couple months ago I argued that a given financial effect on an individual could be called a “tax increase plus a tax credit for doing XYZ,” or a “tax penalty for not doing XYZ,” and that the two are identical in terms of how many dollars all parties involved end up with. Based on that, I was wondering why a tax penalty for not buying insurance would be legally different from the existing, longstanding tax credits for buying insurance.
Two of the judges in the recent Sixth Circuit opinion upholding the law addressed this issue, though the court as a whole declined to rule on taxing power grounds (because they upheld the law on commerce clause grounds anyway).
First reaction: wow, the Sixth Circuit reads my blog and answers my questions! Nice! (Note to the thick: kidding.)
I was arguing (as a non-lawyer) that the government shouldn’t have the power to do something, or lack that power, based purely on what label they stick on it. Surely if the individual mandate were unconstitutional, the government could not fix the constitutional problem with a rewording that would have no practical effect. Should abridging free speech or skipping due process become OK as long as we use the right words to describe them?
(A small twist that might merit a footnote: due to a special rule in the health care bill, the IRS isn’t allowed to enforce the individual mandate’s penalty as strongly as they can enforce falsely claiming a credit. That’s a small practical difference between the penalty and a credit, but one that makes the penalty a weaker infringement on individual rights than the existing credits.)
In the Sixth Circuit opinion, the two judges addressing the tax issue write (see page 29 for the relevant stuff):
…it is easy to envision a system of national health care, including one with a minimum-essential-coverage provision, permissibly premised on the taxing power. Congress might have raised taxes on everyone in an amount equivalent to the current penalty, then offered credits to those with minimum essential insurance. Or it might have imposed a lower tax rate on people with health insurance than those without it.
That is, they agree with me that the tax increase plus the credit would have been the same thing as the penalty, economically speaking. (“Economically speaking” = the same parties end up with the same number of dollars in the same situations.)
But they go on and say it matters what you call it. In other words, they argue the taxing power does not include tax penalties for XYZ, but does include tax credits for not-XYZ.
I thought that was an absurdity proving either 1) the penalty is allowed or 2) the credits are not allowed, depending on your political bent. They embraced the position I found absurd. Lawyers! (eye roll) (Sorry, lawyer friends.)
I see a big gap between those who are all for, or up in arms about, the individual mandate (everyone cites political-philosophy-oriented arguments), and what the two judges are arguing here. Those I’ve heard arguing about political philosophy would be against both penalty and credit, or for both penalty and credit. I don’t know of a philosophical argument where the labeling makes the difference.
Relabeling something doesn’t change what rights an individual has, or what rights a state has, in practice. The distinction, if any, is legalistic.
I’m imagining the founding fathers: “Call it a credit rather than a penalty, or give me death!”
I’m blown away that a law with such huge practical effects — some will say positive, some will say negative, not the point — can be in limbo over this. Neither advocates nor opponents of reform would consider the wording of the bill “what’s at issue,” but it could be what the courts base a decision on. Congress, break out your thesaurus next time.
(As with the previous post, spare us the generic debate about health care reform in the comments, we’ve all heard it before. I haven’t heard much discussion of this very specific legal topic though, insights are welcome on that.)
I’m not sure I understand why you have an issue with this.
This is the same difference between blacklists and whitelists. It’s positive vs. negative logic.
While, yes, they can be crafted to an identical meaning, how you come about that meaning is very different, especially when faced with future changes to the law.
Much of federal law is based around positive permissions, not negative. Congress is granted the power of levying taxes, but any power not explicitly enumerated by the Constitution is not within the Federal Government’s power. (There are practical ways of dodging this check on federal power that have taken place, but that’s beside the point.)
Congress has no enumerated power to mandate the purchase of a good or service to the public at large. However, it DOES have the ability to levy a tax that then pays for the good or service and credits those who’ve already bought the good or service.
I suspect the circuit court was anticipating that this would be the core of the issue, should this case get appealed to SCOTUS.
I kinda get what you’re saying about “future changes to the law,” which could add enforcement mechanisms other than the tax; but I don’t see how the courts could rule on possible future changes… they have to rule on the current law.
Literally, what these two judges say is OK, and what they say is not OK, would be implemented with precisely the same computer math in TurboTax. The practical difference – as far as I know – is not small, it’s zero.
That’s maybe the heart of the issue. I’m really wanting someone to point to some difference, however small.
To me, either Congress can raise your taxes if you don’t get insurance, or not.
Is it so strange to have an issue here, that using the right magic words makes exactly the same thing OK or not OK?
Do you disagree that it’s exactly the same thing, and only the wording differs?
What do you mean by “how you come about that meaning is very different” – what’s the actual difference, in terms of something that happens to somebody or how TurboTax works or how much money some party ends up with? Do you have any difference in mind?
When you say “they have no power to mandate purchase” – I guess you’re trying to distinguish a “mandate” from the “enforcement of the mandate” (the tax). But what does that mean? In what sense are you mandated, except that there’s a tax if you don’t do it? If you don’t get the insurance, you pay more tax. That’s it. There’s no other consequence, right?
And if there’s no other consequence, how is there a mandate separate from the tax? I guess in an abstract sense, there can be a rule you’re supposed to follow where nothing whatsoever happens if you don’t follow it; and it could be unconstitutional for there to be such a rule; but in the real world, what difference does _that_ make?
Congress has the power to enforce a rule, but not to actually make the rule, seems to be the conclusion. I can’t make sense out of that.
(And don’t forget – there is _one_ practical difference vs. the current, longstanding health insurance credits, which is that if you lie and say you bought insurance to get the credits, then the IRS can come after you; while apparently if you just don’t pay the individual mandate penalty, the IRS can’t do anything about it:
http://www.theatlantic.com/business/archive/2010/03/can-the-individual-mandate-be-enforced/38153/
This is equivalent to being able to take a credit regardless of whether you actually bought insurance. i.e. the “mandate” is _weaker_ than the existing credits – in that the penalty for the mandate is not mandatory! … brain melt.)
It’s all politics in the end; given that John Adams signed a health care mandate into law in 1798 (requiring privately employed sailors to buy health insurance), and it was not questioned at the time that Congress had the power to do this despite the presence of many of the Constitution’s authors in public life at the time, there really should be no debate.
The distinction between whether it is a tax credit or a penalty only matters in so much as it concerns whether or not congress is acting under powers granted by the commerce clause or by power granted to tax or raise revenue.
That it called a penalty goes to the overall assertion in the Sixth Circuit opinion that congress is exercising its powers under the commerce clause. This matters because any constitutional limits on congressional power being argued must be assessed against the power the constitution is attempting to limit.
In the crafting of the law, Congress believed they had the greatest constitutional support in their exercise of the powers granted under the commerce clause. This is primarily because the act to self-insure – i.e. the decision not to purchase private health insurance from a third party – has an unquestionably substantial effect on the health care services market. The health care services market is, without question, interstate commerce. The Act passed by congress is intended to address not just the health insurance market but the health care market as a whole since the whole point to reduce the cost of healthcare. The legislative record and many statutes within the act itself point to as much.
The limit on the exercise of such an intrusive power are exemptions for financial hardship and religious beliefs and the uniqueness of the healthcare market – it is perhaps the only market in which practically every citizen participates. It is also a market in which congress has previously required that emergency healthcare services be provided to everyone regardless of their ability to pay. A similar congressional mandate the purchase a product without similar exemptions and in an interstate commerce market that does not meet this criteria should correctly be ruled unconstitutional prima facie.
I have to agree with what Joe Buck said that “it’s all politics in the end”. It will always be about politics, even if you trace it back from the 1700s. Regarding the wording of the bill you mentioned, the wordings are really important in implementation of the law. The wordings draw the line on the limitations of the law.