Health mandate: It's just a tax break in disguise

By Len Burman

SYRACUSE, N.Y. ( -- I'm doing my taxes and thinking about mandates. That is natural because health reform passed during tax season. Critics argue that the new law's requirement to purchase insurance or pay a fine is a radical departure and unconstitutional.

In fact, this is nothing new. Our tax returns are full of implicit mandates with huge penalties -- in the form of lost credits and deductions -- for noncompliance. The government wants us to donate to charity, own a home, save for retirement, adopt a child, buy a hybrid car ... If we don't, we pay more tax (a penalty).

There is a semantic difference between the health insurance mandate and these other tax nudges in that the government doesn't require you to donate to charity or own a home. But the government doesn't really require you to get health insurance either. You are free to ignore the "mandate" and pay the tax.

And some of the other mandates are much more onerous. If I chose to rent rather than own, I'd pay about $7,000 more in taxes -- more than three times the maximum penalty for going uninsured. (Tax time: News and advice.)

There's a child mandate. A middle-income couple that chooses not to have kids can pay more than $1,300 per forgone kid in additional taxes. There's a marriage mandate, too. If that couple chooses to live in sin, they usually pay more tax. For very high-income couples, there's a well-known "marriage penalty" -- the flip side of the marriage mandate.

The requirement to file a tax return is itself a pretty serious mandate, involving hefty penalties and sometimes imprisonment for those who opt out. The point is that the new health insurance mandate is different only in form, not in substance, from the plethora of existing mandates.

The new insurance mandate assesses an excise tax of up to $2,085 per family in 2016 (smaller penalties in 2014 and 2015) for those who do not have "minimum essential" health insurance coverage. Low-income families, Native Americans, undocumented immigrants and some religious groups are exempt.

The truth is, Congress could have achieved the same result by boosting income taxes by the penalty amount for everyone and then providing a tax credit for people with qualifying health insurance. But such an approach might not spur health coverage as much as the penalty will because people perceive tax credits and penalties differently. However, the tax credit approach is clearly constitutional.

Health mandate: A nudge in the right direction

There's a real question about whether most mandates masquerading as tax breaks make sense. Certainly, at tax time, you might wish that you didn't have to itemize deductions and fill out all the forms required to claim various tax credits.

But the insurance mandate, unlike some of the other deductions and credits in the tax code, serves a legitimate public policy purpose: It is necessary for the health insurance market to work properly.

One of the best features of the new law is the guarantee of insurability with no exclusions for preexisting conditions. People who lose their jobs will be able to purchase affordable insurance even if they have cancer or diabetes -- conditions that would have made them insurance pariahs under the old system. And for this to work, people can't be allowed to wait until they get sick before they get insurance. That would drive premiums sky high.

The mandate deters this kind of behavior and also assesses a reasonable penalty for the costs uninsured people create when they show up at the emergency room demanding treatment they can't pay for. That adds more than $40 billion a year to premiums and taxes for those with health insurance.

For these reasons, many of the conservatives who are attacking health reform had previously insisted that mandates were necessary to make health insurance markets work. Now they hope the mandate will be reform's legal Achilles' heel. It shouldn't be.

I have no idea what the Supreme Court will decide about the constitutionality of the new mandate. But in economic court, the case would be dismissed.

Burman is Daniel Patrick Moynihan Professor of Public Affairs at the Maxwell School at Syracuse University. He directed the Tax Policy Center from 2002 to 2008 and served as deputy assistant Treasury secretary for tax analysis from 1998 to 2000. To top of page

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