Feb 18 JDN 2458168
By all reasonable measures, Obamacare has been a success. Healthcare costs are down but coverage rates are up. It reduced both the federal deficit and after-tax income inequality.
But Republicans have hated it the whole time, and in particular the individual mandate provision has always been unpopular. Under the Trump administration, the individual mandate has now been repealed.
By itself, this can only be disastrous. It threatens to undermine all the successes of the entire Obamacare system. Without the individual mandate, covering pre-existing conditions means that people can simply wait to get insurance until they need it—at which point it’s not insurance anymore. The risks stop being shared and end up concentrated on whoever gets sick, then we go back to people going bankrupt because they were unlucky enough to get cancer. The individual mandate was vital to making Obamacare work.
But I do actually understand why the individual mandate is unpopular: Nobody likes being forced into buying anything.
John Roberts ruled that the individual mandate was Constitutional on the grounds that it is economically equivalent to a tax. This is absolutely correct, and I applaud his sound reasoning.
That said, the individual mandate is not in fact psychologically equivalent to a tax.
Psychologically, being forced to specifically buy something or face punishment feels a lot more coercive than simply owing a certain amount of money that the government will use to buy something. Roberts is right; economically, these two things are equivalent. The same real goods get purchased, at the same people’s expense; the accounts balance in the same way. But it feels different.
And it would feel different to me too, if I were required to actually shop for that particular avionic component on that Apache helicopter my taxes paid for, or if I had to write a check for that particular section of Highway 405 that my taxes helped maintain. Yes, I know that I give the government a certain amount of money that they spent on salaries for US military personnel; but I’d find it pretty weird if they required me to actually hand over the money in cash to some specific Marine. (On the other hand, this sort of thing might actually give people a more visceral feel for the benefits of taxes, much as microfinance agencies like to show you the faces of particular people as you give them loans, whether or not those people are actually the ones getting your money.)
There’s another reason it feels different as well: We have framed the individual mandate as a penalty, as a loss. Human beings are loss averse; losing $10 feels about twice as bad as not getting $10. That makes the mandate more unpleasant, hence more unpopular.
What could we do instead? Well, obviously, we could implement a single-payer healthcare system like we already have in Medicare, like they have in Canada and the UK, or like they have in Scandinavia (#ScandinaviaIsBetter). And that’s really what we should do.
But since that doesn’t seem to be on the table right now, here’s my compromise proposal. Okay, yes, let’s repeal Obamacare. No more individual mandate. No fines for not having health insurance.
Here’s what we would do instead: You get a bonus refundable tax credit for having health insurance.
We top off the income tax rate to adjust so that revenue ends up the same.
Say goodbye to the “individual mandate” and welcome the “health care bonus rebate”.
Most of you reading this are economically savvy enough to realize that’s the same thing. If I tax you $100, then refund $100 if you have health insurance, that’s completely equivalent to charging you a fine of $100 if you don’t have health insurance.
But it doesn’t feel the same to most people. A fine feels like a punishment, like a loss. It hurts more than a mere foregone bonus, and it contains an element of disapproval and public shame.
Whereas, we forgo refundable tax credits all the time. You’ve probably forgone dozens of refundable tax credits you could have gotten, either because you didn’t know about them or because you realized they weren’t worth it to you.
Now instead of the government punishing you for such a petty crime as not having health insurance, the government is rewarding you for the responsible civic choice of having health insurance. We have replaced a mean, vindictive government with a friendly, supportive government.
Positive reinforcement is more reliable anyway. (Any child psychologist will tell you that while punishment is largely ineffective and corporal punishment is outright counterproductive, reward systems absolutely do work.) Uptake of health insurance should be at least as good as before, but the policy will be much more popular.
It’s a very simple change to make. It could be done in a single tax bill. Economically, it makes no difference at all. But psychologically—and politically—it could make all the difference in the world.