According to Justice Ginsburg, the central justification for the individual mandate is to prevent “free riding” by the uninsured, who allegedly impose a cost of more than $1,000 apiece on other health insurance market participants. But the dirty little secret of American healthcare is that the mandate wouldn’t save taxpayers a dime. Why? Because the tax subsidies for people with health insurance are bigger than the unpaid medical bills left behind by the uninsured.
I reported earlier that, on average, uninsured Americans in 2011 generated $1,078 apiece in uncompensated care losses. With 49.9 million uninsured, this amounted to $53.8 billion last year. Leave aside the fact that the mandate will not apply to everyone (e.g., those qualifying for Medicaid) and that careful analysis has shown that the actual amount of uncompensated care that would be averted through a mandate is more likely to be 30% of the total amount of uncompensated care attributable to the uninsured. As the following analysis shows, even if we generously assume that the mandate will eliminate all uncompensated care losses for the uninsured, it will not save taxpayers a single penny!
It turns out that three quarters of the uncompensated care generated by those without coverage is financed by taxpayers, or about $728 per uninsured in 2011. However, for the 169 million Americans with employer-based health plans, federal and state taxpayers finance an average of $1,890 apiece for their health insurance coverage. That is, Uncle Sam (and states) encourages people to buy employer-provided health insurance by not taxing it, a subsidy that amounts to about 36% of premiums for employer-provided family coverage. The $1,890 represents the tax savings provided to those who purchase health insurance rather than receive the same dollar amount in cash wages. In short, most privately insured Americans cost the U.S. taxpayer at least $1,100 more apiece than their uninsured counterparts! So who is doing the free riding here? Admittedly, only three quarters of the uninsured are workers or their dependents, so not all of the uninsured would qualify for the subsidies for employer-sponsored coverage if they obtained insurance. But even taking this into account, this simple analysis demonstrates that it would cost taxpayers about $700 more per uninsured if this “free riding” ended than if it continued.* Note that I am only referring to existing tax subsidies for employer-provided health insurance under current law. If we took into account the much more lavish subsidies that will be provided to newly covered individuals under the Affordable Care Act, the figure would be much higher than $700 per previously uninsured individual.
But what about the one quarter of uncompensated care costs not paid by taxpayers? This amounts to $250 per uninsured and purportedly is borne by those with private health insurance. Subtracting this amount from $700 doesn’t change the conclusion that the typical insured individual costs society/taxpayers more in subsidies than the typical uninsured individual. Nevertheless, it does seem unfair that those with private insurance should bear this burden. But how big is this burden in actuality? As I demonstrated yesterday, cost-shifting by all the uninsured adds about 20 cents a day to the premiums of the average person with private health insurance coverage. But when we exclude all the uninsured individuals who will not be affected by the mandate, the maximum increase in premiums that might be averted by the mandate is only 6 cents a day, or $23 a year! Thus, the actual burden on the average privately insured family that the mandate will avert is less than $100 annually—far, far below the mythical $1,000 figure repeatedly cited this week by Justice Ginsburg.
But using the same logic, the $700 in added taxpayer spending per uninsured would, as a very rough approximation, translate into an added cost of $175 in the taxes paid per privately insured individual—or about $700 per privately insured family of four (this isn’t quite fair, since it does not account for taxpayers with Medicare and Medicaid, but in the grand scheme of things, the amount of taxes paid by such individuals is not that large). Thus, even the privately insured (the group supposedly “burdened” by the free riding of uninsured patients) would pay more if “free riding” were eliminated through an individual mandate than if it continued!
So if the mandate was not about saving money, what was it about? It was about forcing predominantly young people, whose annual healthcare costs are about $850 a year, to purchase coverage costing many thousands of dollars. The mandate was about forcing these individuals to pay for the care of other people (older and sicker) rather than their own care, a point that Justice Alito seems to have grasped quite astutely. But if that’s true, then the individual mandate had nothing to do with a legitimate exercise of the Commerce Clause, but instead was an end-around Congress’s taxing powers. The mandate is a hidden tax cloaked in the guise of making people responsible for their own health bills.
This is the knotty question now facing the Supreme Court. The mandate was a way of avoiding Congress having to impose additional taxes of $360 billion on Americans. The designers of Obamacare were well aware that if the true costs of the bill were accurately identified and taxes transparently increased to cover them, the public never would have supported health reform. This is why they resorted to all manner of smoke and mirrors to hide the true costs and to reliance on hidden taxes such as the individual mandate to further hide from view the burden this plan would impose on Americans. To their credit, the American public appears not to have been fooled. Since the law was passed nearly two year ago, RealClearPolitics.com has tracked more than 100 different polls on the issue. With the exception of one lone CBS/New York Times poll conducted in January 2011, every single poll has shown that those favoring repeal of the health law outnumber those who oppose repeal by margins that in some polls have reached as high as 31 percent. In all but 8 polls, an absolute majority of those surveyed favored repeal. In light of the reality that the individual mandate would actually increase rather than reduce the burden posed by today’s uninsured, it will be interesting to see what the Court ultimately decides about this contentious mandate.
Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research, an adjunct scholar at AEI and affiliated senior scholar at the Mercatus Center at George Mason University. His new book American Health Economy Illustrated, was released in February 2012 by AEI Press.
*This adjustment entails multiplying $1,890 by 75% to obtain an “expected” subsidy for employer-based coverage of only $1,418 per average uninsured, yielding a net difference of about $700 rather than $1,100.