I'll Tax the Insurance That You Lack


As I've mentioned before, one of the main factors that soured the insurance companies on President Obama's health care plan was the mismatch between the cost of medical coverage and the size of the penalties for failing to buy it. If the government cannot conscript enough young, healthy policyholders to subsidize care for people with pre-existing conditions, rates will shoot up, encouraging more of the healthier customers to drop coverage, which will cause rates to rise further still, and so on. As Peter Suderman put it in January, "Go through a couple iterations of this, and fairly quickly you have a very small, very sick, and very, very expensive insurance pool." Washington Post columnist Charles Lane, a supporter of ObamaCare, is worried about just such an "adverse selection" spiral, and it's not hard to see why.

Under the bill Obama is about to sign, the penalty for failing to buy medical insurance is initially $95 or up to 1 percent of income, whichever is greater; it rises to $695 or 2.5 percent of income by 2016. In 2009, according to an industry-sponsored survey (PDF), coverage for a single person in the individual market cost an average of about $3,000. For a young, healthy person making $30,000 a year, paying the penalty ($750) will be much cheaper than buying insurance he already has decided he does not want. In fact, the gap between the penalty and the cost of insurance will be larger than these numbers indicate because premiums will be pushed up by new minimum coverage standards and by regulations requiring insurers to accept people with pre-existing conditions and charge them the same rates as everyone else. Furthermore, because those new rules mean that people can safely wait until they get sick to buy coverage, the young and healthy may be even less inclined to comply with the individual mandate.

Lane notes that coverage rose in Massachusetts after it imposed an individual mandate, but he also notes that the state already had the "guaranteed issue" and "community rating" rules the federal government is now imposing nationwide. Those rules both increase the need to conscript healthy policyholders and, by boosting premiums, make it harder to do so.

All this is assuming that the Internal Revenue Service does an effective job of enforcing the individual mandate, which will be implemented via tax returns (but is definitely not a tax). Lane asks:

What is going to happen when the notoriously inexact Internal Revenue Service starts trying to administer this mandate nationwide through the tax reporting and collection system, as the bill provides? A little-discussed wrinkle here is that under current law most of the IRS's enforcement activity involves audits and other actions against relatively well-off people (and their lawyers or accountants). But what happens when it gets involved with a far wider spectrum of citizens, including many of modest means?

Peter Suderman analyzed the experience with guaranteed issue and community rating in a January Reason article. I criticized Obama's misleading defense of the individual mandate in a column last year.

NEXT: Bailing Out Big Brother

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  1. Go Galt and teach us all a lesson.

    1. Suck a dick.

      1. I would but I’ve Gone Galt! Someone will have to do it for me, I’m tired of these parasites making me do it myself!

        1. it aint gonna suck itself

  2. Armed insurrection would be cheaper.

    1. Looks like Weigel is ready (in the above article).

    2. I hope you aren’t waiting for the armchair revolutionaries on this site to start it.

      1. Let me guess, you work for the FBI? Instigator!

  3. But what happens when it gets involved with a far wider spectrum of citizens, including many of modest means?

    That’s the beauty part, man. Poor people are easier to terrorize into paying the ransom.

  4. I’d like to know how many healthy MA residents have chosen to pay the fines rather than purchase overpriced mandated policies.

    Anyone have stats on how much the state has actually levied or collected in penalties?

  5. But what happens when it gets involved with a far wider spectrum of citizens, including many of modest means?

    A combination of

    (1) Lax enforcement, reducing the revenue stream and increasing the deficit and

    (2) Creation of new and more intrusive and heavily staff bureaucracies to pry into the lives of more and more citizens.

    More deficits, more bureaucrats, and less freedom. “Health” “care” “reform” in a nutshell.

  6. Community rating is going to destroy the economic competitiveness of areas that have large older population.

  7. This law needs to be killed. Challenge it fifty different ways in court, add its repeal to every stinking bill after November, refuse to comply.

  8. God! *crosses fingers*

    I really hope SCOTUS strikes down this individual mandate. What would be, the still hypothetical, fallout from that?

    1. Taxes will be raised to close the substantial revenue gap. Promises broken left and right. The usual.

    2. Single payer healthcare.

  9. This thing is going to totally fuck the middle class. Lets say you are a duel income family of four making $150K a year. You will not get one dime of subsidy. But at the same time, since you have kids you are not going to risk dropping your insurance. At the same time, the pool of insureds is going to get older and sicker as Suderman points out. So your insurance rates are going to go through the roof.

    This bill fucks the middle class and upper middle class royally. That is why it is not going to be popular like medicare and social security. Those are middle class entitlements. The middle class defends those programs to the death because they view them as the only thing that keeps them from going broke taking care of their parents. They won’t defend or support this program.

    1. Cut that salary in half, and I’m sweating bullets here, John.

        1. John, I believe he was making a little joke on your misuse of the word “duel” (pistols at dawn) where you presumably meant “dual” (two).

  10. It’s touching that liberals have finally done something about “free riders.” Sort of like making transit riders put 35% of the cost of their ride in the farebox instead of zero.
    There is another approach of course:
    pay the full cost of your ride or get off? No cojones to say “Have insurance by 7/1/10 or pay cash or seek charity for medical services but don’t expect to be treated for free.”

    1. You don’t think liberals ever had any genuine interest in dealing with any “free rider” problem do you?

      It’s all about making as many people as possible as dependent on government as possible. So they can hold those handouts hostage to votes for their candidates.

      1. It’s much better to sell paranoia and Jesus for votes!

    2. It’s not a free-rider problem if the government forces you onto the bus in the first place.

      1. That’s next up, driving the price of gasoline up to $7.00 or $8.00 a gallon. Mass transit will benefit and the good thing is when diseases get passed around even faster and larger scale because more of us are huddled up on the train at least we’ll all have health insurance.

  11. It’s not an “individual mandate”. It’s a tax on breathing.

    1. if you want less of something, slap a tax on it!

      1. Even George Harrison didn’t predict a tax on breathing, but he came close with the last line here.

        (If you drive a car ), I’ll tax the street,
        (If you try to sit ), I’ll tax your seat,
        (If you get too cold ), I’ll tax the heat,
        (If you take a walk ), I’ll tax your feet.

    2. Poll tax

  12. Julie-yanni is making some sense on cnbc right now. Too bad he was such a war hawk, a moral pussy, and a socialist corporatist.

    1. Yeah because he might have the US still in Iraq and may have escalated the war in Afghanistan!?

  13. Is this bill on the whitehouse website yet? I can’t find, but I should have another 4 days to find and read it before Obama signs it. It’s not like he’s a liar or something.

  14. You make the “problem” of ever increasing costs to cover an ever sicker, smaller pool of insured people sound like a bug, Sullum. It’s by design and the solution is single payer.

    1. Create the problem then voila you have the solution to fix the problem. Hooray more money for Freddie and Fannie!

  15. I’m fairly sure a lot of people are simply going to lie about having insurance and hope the IRS verification is lax.

    Most people see fibbing on their tax returns as self-defense and this is just going to be one more thing to do it about.

  16. We are all wards of the state now.

  17. It’s my understanding that there really isn’t any punishment for not paying the fine.

    Of course that’s not gonna stop you losers from equating it to forced oral sodomy and the triumph of fascism.

    1. It’s my understanding that there really isn’t any punishment for not paying the fine.

      I’m sure the IRS will be shocked to learn it has been stripped of its collection and enforcement powers.

    2. It’s my understanding that everyone making less than 40k with no insurance deserves to be put on a leash by their nearest government worker anyway.

      You are slaves, why are you sitting down? If you weren’t sitting down you’d already have insurance! Work BITCHES!

      1. Tony and I agree, people making under 50k are whiny bitches, especially if your trying to skirt the system and work for yourselves!

        Find a real man to work for and work harder you little fuckers!

    3. It’s my understanding that there really isn’t any punishment for not paying the fine.

      This is why Tony is considered an idiot by those with multiple functioning neurons.

      26 U.S.C. ? 7206 : US Code – Section 7206: Fraud and false statements

      Anyone filing a false tax return

      shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

      How does it feel to be that imbecilic, Tony?

      1. Filing a false return is not the same as not filing a return, but I’m sure there’s a penalty in the law somewhere. Look in the internal revenue code section on buttfuckery.

    4. It’s my understanding

      I should have stopped reading right there.

  18. Tax the rich and feed the poor
    Until there are no rich no more

    Fuck the boomer in the ass with a splintered broom stick.

  19. Tax the rich and feed the poor
    Until there are no rich no more

    Fuck the boomer in the ass with a splintered broom stick.

  20. Sodomy, check.

  21. Wait…its not a tax, but the IRS administers it? Thats pretty fucking cute of them, huh?

    And just what is the IRS is going to do when you don’t pay the Obamacare “fine”? Pile up more “fines” penalties and fees, compounded with interest upon interest? Just like the IRS does with any other tax…errr I mean “fine”? One has to wonder if a jail term could eventually arise from refusal to pay the fine or buy insurance…like there is for failing to ‘voluntarily’ file and pay your taxes.

  22. It would be pretty ironic if the health reform legislation — so urgently needed to expand health insurance coverage and stop rate inflation that it justified skullduggery and corruption — ends up increasing insurance rates and lowering coverage.

    Of course, that would just show that America really needs single-payer.

    1. The banner at the top of Slate is “next stop, single payer”.

  23. All your insurance are belong to us.

  24. I know I won’t be the only one fighting this. this is America and we are supposed to have due process. the insurance companies and the government aren’t going to get a cent from me.

  25. is the IRS going to be able to find and fine the people who don’t pay taxes? I mean people who make under the exempted amount before you are required to pay federal taxes.

  26. I’m facing a $1200 penalty on my Massachusetts taxes for not having enough medical coverage. My medical insurance meets my needs, but it’s not enough by the state’s mandate. I’m seriously thinking of not paying the penalty.

    Also, wasn’t Charles Lane in “It’s a Wonderful Life?”

  27. Third party payer is the problem and I refuse to contribute to the problem. I have saved ten thousand dollars so far, and I intend to pay the fine up and until it is pegged at half the price of a policy. Which will be never.

  28. Jacob:

    Which one is is it:

    a) Obamacare is a big payoff to insurers with a bunch of new customers provided by the federal government

    – or –

    b) Will it cause health care costs to rise, leaving insurers at the mercy of an adverse selection spiral that will allows healthy risks to opt out with a small penalty while allowing those with pre-existing conditions to game the system?

    It can’t be both, because if you understand adverse selection and health insurance pricing and the dynamic nature of the two, a weak mandate leads to adverse selection.

    1. Joe, its both.

      The mandate will cause a drive a lot of new customers to the health insurers AND

      Rates for everyone will go up because of community rating and adverse selection, BECAUSE

      The new customers won’t be numerous enough to pick up all the new costs.

  29. At some point the wealth transfers are going to become dangerous. I only pray the death squads will target gray hairs of the Democratic persuasion first.

  30. I still have not heard an answer to the following problem regarding HCR:

    It’s 2014. John is 27 and does not have health insurance. Yes, he is “mandated” to, but he opts to pay the $695 fine/tax for NOT having health insurance rather than spend $600/month on health insurance. John gets leukemia. He applies for health insurance figuring that he cannot be denied even though he has a pre-existing condition.

    Is John right? If he is, what’s to prevent all of us from paying the $695 per year “tax” and then applying for insurance when we get sick?

    1. Yep. Hence the quote in the article: “Go through a couple iterations of this, and fairly quickly you have a very small, very sick, and very, very expensive insurance pool.”

    2. And what is the penalty for not paying the healthcare ‘fine’? A jail cell with 3 meals a day and…free government healthcare???

  31. I’m told that already insurance companies are facing insurance pools of disproportionately sick individuals because healthy people have already begun to see the cost efficiency of doing without health insurance, using personal savings and personal health regimens as their own sort of “insurance.” (I’m for it.)

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