Is the Health Care Law’s “Mandate” Really a Tax?—Posner

I agree with Becker (and with the Supreme Court) that the “mandate” in the health care law—the requirement that people who can afford to buy health insurance must do so on pain of having to pay a “penalty” if they do not—is within Congress’s taxing power under Article I of the U.S. Constitution, the article establishing the legislative branch of the federal government. Article I among other things authorizes Congress "to lay and collect taxes, duties, imposts and excises." The fact that Congress called the mandate exaction a penalty rather than a tax is of no significance. It was done simply because “tax” has become a dirty word in American political discourse. 

It is true that the main reason for taxes is to generate revenue for the government, and the mandate exaction is not a revenue tax but a regulatory tax. But regulatory taxes—a tax on emission of pollutants, for example—are common; their aim is not to generate revenue but to discourage undesirable practices, though they generate some revenue because some of the taxpayers find the tax less onerous that discontinuing the taxed activity. The “duties, imposts, and excises” to which Article I refers would include tariffs, which are often intended to discourage imports rather than to raise revenue. It is true that from an economic standpoint a regulatory tax may not seem sharply different from a fine (for illegal parking, for example), which is not a tax within the meaning of Article I (if it were, Congress would have virtually unlimited regulatory power, rather than just the enumerated powers set forth in Article I). But there is a significant difference. Fines are imposed on activities that are forbidden, rather than merely sought to be discouraged or reduced. Even when the fine is light, as in the case of most parking tickets, repeated violations will result eventually in severe sanctions, so the violator really doesn’t have an option to pay rather than comply. Fees for specific services, such as for a passport or a driver’s license, are also distinguishable from regulatory taxes, because fees are in exchange for specific government services, whereas taxes are not usually paid in exchange for specific services. 

So the mandate exaction, though called a penalty, is in fact a regulatory tax and therefore within Congress’s power. Whether it’s set at a rate that will actually induce many people who currently lack health insurance to buy health insurance is a separate question, and still a third question is whether if so the result of adding to the number of Americans who have health insurance will be good for society as a whole. The idea behind the mandate that the tax is designed to enforce is that the uninsured are free riders. They tend to be young and therefore on average in good health, and by opting out of the insurance pool they increase the cost of insurance to the people who remain in the pool. In addition, when they do get sick, they tend to visit hospital emergency rooms for diagnosis and treatment, and emergency rooms tend to be very expensive. The hospitals send the uninsured whom they treat stiff bills, but often the bills are not paid. 

If the mandate succeeds in inducing many uninsured to buy health insurance, this should reduce the health insurance premiums paid (either directly or in the form of lower wages because their employer is paying the premiums) by those who already have health insurance. But this will just be a transfer of wealth from one group of people to another. More important from an overall economic standpoint, a reduction in the number of uninsured will increase aggregate health costs because uninsured people demand and receive less health care, on average, than the insured. The study by Hadley and coauthors that Becker cites estimates that providing health insurance (whether private or, in the form of Medicaid or Medicare, public) to all the currently uninsured would increase total health care expenditures in the United States by 5.1 percent a year, a substantial increase (given the size of the health care industry) equivalent to 0.8 percent of GDP. (Their study was conducted four years ago; I don’t know what the current best estimate would be.) 

It cannot be assumed that the cost increase would be offset by a reduction in medical expenses attributable to the better health that people who by virtue of having health insurance can expect to have because they don’t skimp on medical screening and treatment. Better health care will increase longevity, but that means more old people, who consume a disproportionate amount of medical care as it is.

Comments

[Thomas Rekdal]

It is certainly true that a tax with regulatory purposes can still be a tax, but there is something odd, is there not, in saying that Congress may tax an activity (or in this case inactivity) that it would otherwise have no constitutional power to order? Chief Justice Roberts spends one half of his opinion explaining why Congress has no "enumerated power" under the Commerce Clause to make the non-purchase of health insurance unlawful, and the second half of his opinion explaining why Congress may nevertheless attempt to accomplish the same end through the tax power. How can that make sense?

Moreover, the more the mandate "tax" resembles an insurance premium, the more it looks like a "penalty," while the less expensive it is in relation to a premium, the less effective it is likely to be. In other words, it is either an unconstitutional "penalty," or it is likely to be unworkable.

I am perfectly happy with the Supreme Court decision, since I consider the question of health insurance a political question that should not be decided by the Supreme Court. But the Roberts opinion (as opposed to the outcome)strikes me as incoherent. This may not be a fatal defect, however, as the metaphysical distinctions between "taxes" and "penalties" and the Commerce Power versus the Taxing Power will probably fade into insignificance if the health care proves acceptable (if not popular).

[Tim Morgan]

Doesn't the use of the taxing power under article one really circumvent the last line of protection between government compulsion and individual liberty? Thinking of the endangered species act, etc... There are many scholars who believe that many applications of said act are unconstitutional as a violation of the commands of the commerce clause. If Roberts if correct, then it would be perfectly permissible to "tax around" otherwise unconstitutional efforts to either compel behavior or deter it. Why has no one dealt on all
Fours with the fact that Roberts called the mandate and did not, as most law school students would understand, confirm its constitutionality under the tax clauses? He said it was a tax and that seemed good enough... A decision bereft of real legal heft...

[Noah Ellenberg]

I disagree with your comment that “The idea behind the mandate that the tax is designed to enforce is that the uninsured are free riders.” I think the mandate has two primary purposes: (1) if insurers are no longer allowed to deny coverage to people with preexisting conditions or to charge those people higher premiums, then people are incentivized to wait to purchase insurance until they develop such a condition; so the mandate makes sure this won’t happen; and (2) both this restriction on preexisting conditions and the community rating provisions will cause insurers to charge more in premiums to the rest of their insureds; the mandate will partially hide this increase by forcing more people into buying insurance, thus allowing insurers to spread these increased costs over more people.
You also say that people who do not buy insurance cause those with insurance to suffer higher premiums. I agree that people who use the emergency room and don’t pay their bills cause premiums to rise. However, you imply that the uninsured cause higher premiums even absent that emergency room effect, and I don’t understand how. If the insurers have a risk category for “young, healthy people” that determines the likely medical expenditures in a given year will be $350, then the insurer will charge a person in that category $350 in premiums, plus admin costs and profits. That price should not change significantly just by adding more young, healthy people into the insurance system. Each person added into the system will still on average cost $350/year and will be charged a premium accordingly.
I agree that with community rating and not allowing insurers to deny preexisting conditions, an uninsured person does increase the costs for everyone else. But in an insurance system without those features, the same is not true.

[Rcfwilmette]

Short, sweet and right on point. ACA is constitutional under the taxing power. The only other thing to add is that the entire discussion of the commerce clause is dicta, that is, unnecessary to the decision. Therefore, it lacks the weight of precedent for future cases.

[Thomas Rekdal]

Rcfwilette: Your suggestion that all the Commerce Clause discussion in the Roberts opinion is mere obiter dicta, thrown out presumably as red meat for conservatives is interesting, but not very plausible. Roberts could, of course, have written an opinion devoted entirely to the Taxing Power, with a brief reference at the end to the interesting questions raised about the Commerce Power, which they need not reach. But he did not, choosing instead to begin with a lengthy discussion of the Commerce Clause. That suggests a constitutional ruling to me. But I do think your comment points up the "fuzziness" of distinctions between holdings and dicta.

[Mitchell K.]

It is true, as Posner and John Roberts both claim, that regulatory taxes are within Congress's power. However, Posner concedes that a meaningful distinction exists between modest regulatory taxation and taxation that forbids activity (or inactivity if you accept the findings of the dissenting minority) or else "Congress would have virtually unlimited regulatory power, rather than just the enumerated powers set forth in Article I."

According to the Roberts opinion, the health care mandate cannot be upheld on the basis of it being an application of Congress's power to regulate interstate commerce. If the opinion is correct, one wonders how the mandate can be enforced via a regulatory tax if the regulation itself is deemed unconstitutional.

Consider, for example, a hypothetical federal tax or surcharge of five hundred dollars on all abortions performed in the United States. Supporters of such a tax would claim that they do not intend to forbid abortions but merely discourage or reduce abortions. Such a tax could even be tied to someone's annual income in the same way that Obamacare's tax penalty is income dependent. How about a tax on abortion of $700 or 2.5% of the woman's annual income (which ever one is higher) for every abortion performed? What chance is there that Ginsburg and Kagan would uphold such a "tax?"

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[George Edelstein]

Prof. Posner: having explained (convincingly, as always) why the majority got the taxing power question right, maybe you could help us understand why the Chief Justice was moved to express his personal view, gratuitously it seems, about what the Commerce Clause means, and why he didn’t just join the per curium dissent (which is a rarity, as far as I know). He probably had at least one reason for writing his very own dissent, but what could it have been?

And what happened to Ashwander?

[Eric Knudson]

Mitchell K.
Congress could levy a tax on abortions, or anything else it sees fit to tax, but the permissible severity of the tax would be limited by its impact on the exercise of the underlying right. Congress could not (constitutionally) pass a tax that effectively eliminates (or overly curtails) the ability of the citizenry to exercise a recognized right, where the right is independently protected, economic freedoms (such as those at issue in remaining uninsured), however, are rarely considered protected by the Constitution. So long as the abortion tax did not present an undue burden on the exercise of the underlying right, I would expect such a tax would be upheld, although I suspect both justices you mention might find that such a tax was unduly burdensome.

So far as I understand, Congress's ability to affect an area of life through taxation is limited only by the extent that regulation of that area is forbidden to it. So long as there is no prohibition, Congress can tax as it pleases, it does not need an independent source of authority to levy any tax even in areas where it has no enumerated power to act in other ways.

[TANSTAAFL]

Like CJ Roberts, Posner strays from legitimate constitutional interpretation and enters the land of the sophists. By such reasoning a federal "regulatory tax" on people who refuse to eat broccoli is constitutional.

Bah.

[Thomas Rekdal]

Eric Knudson
The notion that Congress may tax whatever it pleases, so long as it does not impair rights specifically protected, runs counter to the basic design of the Constitution. States possess such broad power, because they are presumed to have all the residual powers that any government may have; they need not point to some specific grant of authority. But this is not true of the national government, which exercises only the powers granted to it. All laws, regulations, and taxes, therefore, must be authorized by some enumerated grant of power. So in theory, anyway. Admittedly, it has not worked out that way in practice. The broad language of the Constitution has permitted, and continues to permit, vast expansions of federal power. In the end, we have only the limitations that voters will insist upon. So on to the November election!

[Linda Dark]

I agree with Mr. Rekdal's observations that Chief Justice Roberts' opinion is incoherent because it says that Congress may use its taxing powers to take money from people who refuse to comply with a regulation that is unconstitutional.

On the other hand I cannot share his blithe attitude about that incoherence. He says it is not a "fatal defect" because the "distinctions between 'taxes' and 'penalties' and the Commerce Power versus the Taxing Power will probably fade into insignificance . ." It seems to me the lack of distinctions is a problem for the courts and the country in general, and what we need now and probably always are more distinctions, not less. Even if the lack of distinctness between the clauses and their meaning is limited to this ACA Decision it will remain a bad example for future lawmaking.

I do not want to want to be inside of Chief Justice Roberts' mind. This is now a popular metaphor and the incoherent quality of his opinion has inspired it. We should not have to be clairvoyants. It should be sufficient that we can read.

[Jimbino]

I find it sweet that Becker/Posner withhold legal opinions on the basis that they are not lawyers, but I find it disappointing that these two economists refrain from deeper economics analysis.

For example, take the worn-out contention that it is the uninsured who are free riders, running up everyone's premiums by showing up at emergency rooms for their care.

This is nonsense, and I would like the resident economists to present an analysis of the economics; instead they prefer to dwell in the tax/penalty woods.

My hypothesis, based on my armchair economic analysis, is this:

1. The federal, state and local gummints contribute (directly and indirectly through tax subsidies) some 50 to 70% of the healthcare expenditures in this country.

2. The uninsured person is far less likely to seek medical care of any kind and, probably, somewhat less likely to seek emergency care than is the insured person.

3. The uninsured who occasionally shows up for treatment at an emergency clinic has already paid (see 1 above) 50 to 70% of the cost of his treatment.

4. That being the case, one can argue that the uninsured who occasionally seeks treatment at the emergency clinic actually subsidizes the health care of the (relatively hypochondriac) insured, NOT the other way around.

[Thomas Rekdal]

Linda Dark
Well said. I hope my "blithe attitude" about the incoherence of the Roberts opinion does not express an insouciance about the American Constitution that I do not feel. It is just that I have come to believe that constitutional limitations mean nothing more than the principles the American people, not the courts, will defend.

[Dan Moore]

Becker/Posner,
While your opinions are a very interesting read and make very good arguments to the issue at hand, would you please consider evaluating the existence of insurance from an economic and legal standpoint?

I'd be very interested in the outcome of socializing the entire industry to the point where admissions into medical school, subsidies on equipment and training, American's rights to sue medical doctors, and even the entire middle-man industry that is the insurance business model is evaluated.

Thank you very much for your time.

Sincerely,

[Alberto Garcia]

Mr. Posner,

Prof. Becker, in his post, does NOT " agree" with you "that the “mandate” in the health care law—the requirement that people who can afford to buy health insurance must do so on pain of having to pay a “penalty” if they do not—is within Congress’s taxing power under Article I of the U.S. Constitution".

On the contrary, he states that:

"I am not a lawyer, and cannot judge the constitutionality of the mandate or other aspects of the Affordable Care Act."

[mary]

It seems to me that, once again, the people (not class) most effected are those of us who pay our bills, have always paid our bills and will continue to pay our bills!( however at a much higher rate than before...)

[Linda Dark]

Thomas Rekdal

Thank you.
The Court is supposed to help defend it, right?

Some people are saying that the majority opinion is brilliant because it will act to dilute criticism of the Judicial Branch that accuses the present Supreme Court of being activist in favor of the right. If the Congress passes unconstitutional law , the Court should strike it down without regard to number. If Congress passes 10 or 20 laws a year that are unconstitutional then the Court ought to strike them down. It does not mean that the Court is too conservative. It means that the Congress is too ambitious.

Those that praise the Chief Justice's opinion say it's a brilliant decision because when something more important is decided in accord with the opinion of conservative people, it will defuse accusations of partisanship. But, they are wrong about that.

The Supreme Court was created to protect the minority from the tyranny of the majority . So why would the Court demure to the popular side? That's not their job.

What is brilliant is the way those on the left have captured the dialogue and intimidated the Court.

What could be brilliant is an opinion that convinces the good-hearted people of the United States that their Constitution is already perfect, and that health care problems will not be solved by delimiting the power of the federal government.

Moreover, if citizens do not like the Constitution, they are welcome to change it by amendment.

[Bill Severson]

Penalties and taxes are founded on different sources of governmental authority. Taxes are founded on the power of taxation. Penalties are founded on the police power. It is an important distinction because the federal government is a government of delegated powers. It does not possess inherent police power authority as do the states. It has long been recognized that specific charges can serve both revenue raising and police power purposes, but when that happens it is often still necessary to categorize the charge as either one imposed under the police power or one imposed under the tax power. At the state and local government level, this distinction is important because local governments typically have only that tax power that is specifically delegated to them by the state legislature, but they usually have general police power to adopt any measures that do not conflict with general state law. How the charge is characterized will determine whether the local government has authority to impose it without express statutory authorization. The long standing basis for making this distinction was articulated long ago by Judge Thomas Cooley: "The distinction between a demand of money under the police power and one made under the power to tax is not so much one of form as of substance. The proceedings may be the same in the two cases, although the purpose is essentially different.... Suppose a charge is imposed partly for revenue and partly for regulation. Is it a tax or an exercise of the police power? ... If revenue is the primary purpose, the imposition is a tax. Only those cases where regulation is the primary purpose can be specially referred to the police power."

No honest observer could think that the primary purpose of the individual mandate is to raise revenue. We should not be making up new law and casting aside long standing principles without even mentioning those principles in the opinion or explaining why they don't apply.

Shame on the Chief Justice.

[NEH]

Call it what you will; a penalty, a fee, a tax, an impost or whatever. The fundamental issue still remains. When the State wide insurance listings are created and the increase in the insured pool happens, are we going to see a significant decrease in premiums that allows the Public to actually purchase Health Insurance with out being bankrupted? BTW, does this also cover Dental, Optical and other necessary medical or psychiatric procedures above and beyond Major Medical?

As for its Constitutionality, the S.C. has decided it is. Even if the Decision was only 5 to 4. Too bad they couldn't get the "Rule of Nine" on such an important Social issue.

[Thomas Rekdal]

Linda Dark
You raise too many difficult questions to respond in a brief post. I would only embarrass myself.

Since you are clearly interested in how to think about a government of enumerated powers and what role (if any) courts should play in policing its limits, let me suggest an uncommon resource: some books. In no particular order, I recommend: H. Jefferson Powell, "A Community Built on Words: The Constitution in History and Politics" (Chicago, 2002); Joseph M. Lynch, "Negotiating the Constitution: The Earliest Debates Over Original Intent" (Cornell, 1999); Leslie Friedman Goldstein, "In Defense of the Text: Democracy and Constitutional Theory" (Rowman & Littlefield, 1991); and Richard A. Posner, "How Judges Think" (Harvard, 2008). Yes, he is more illuminating in Part Three of that book than in his brief posting here. One can't say everything at once, after all.

[TANSTAAFL]

"What is brilliant is the way those on the left have captured the dialogue and intimidated the Court."

Thus sayeth Dark, missing the point altogether.

What matters is that the Framers established a Republic on principles firmly rejecting the views of the Left. After CJ Roberts's pathetic turn at emulating CJ Taney, or CJ Hughes in reaction to FDR's political intimidation, the founding principles are in jeopardy. Where is the "brilliance" in that?

Dark probably thinks Lenin, Stalin, Mao, and Pol Pot were "brilliant." Also pathetic.

[Linda Dark]

Tanstaafl

Perhaps I have missed the point, I have surely missed many before now, what is it? I believe that a majority of us have been duped. One would hope it would take a kind of super intelligence in the art of obfuscation in order to do that. And I am particularly alienated by those who call the Chief Justice's opinion "brilliant". You know the plan of the Communist Party was (is) for the U.S. to raise up a generation of illiterates. My generation is going to be buried by the Communists according to their plan.

Do you know the one about sending the "rich away empty"?
The rich are not empty because some righteous ruler takes their money and gives it to the poor; they leave empty because they do not listen with an open mind. The left love to mix in Bible verses to make us feel guilty.

Thomas, I have read enough books, and I've read Prof. Posner, and I am not sure he wrote the above. Maybe he has undergone a change. The reason I am at this site is I have a lot of respect for the U. of Chicago, and Prof. Posner, and Prof. Epstein. Oh yeah, and Prof. Strauss and his crew. This is all fun; not for embarrassment. Temper the spirit and we'll be fine. :)

[George Edelstein]

Mr. Jimbino: For the record, Mr. Posner is not only a talented economist; he is also a law professor, federal judge, lawyer and author (not necessarily in that order), and a hell of a smart guy.

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