Debunking the myths and scary stories about the new insurance mandate

health careI'm mildly ashamed to admit that I was perusing a competing blog the other day and was consequently shocked to notice on the front page a banner headline and gigantic photo warning that if you don't buy health insurance under the new law, armed IRS agents in full riot gear will storm your neighborhood and take you by force.

That's what we typically refer to in journalism as "crazy."

Let's rewind. The newly passed health care reform legislation includes a variety of immediate benefits that will make your life just a little easier. Your kids will be allowed to remain on your policy until they're 27. Senior citizens will see their out-of-pocket prescription drug costs discounted by 50% while trapped inside the infamous "doughnut hole" -- in fact, if a senior has already reached the doughnut hole this year, he or she can expect to see a $250 reimbursement check from the government. Small businesses will receive a huge tax cut (35-50%) in order to pay for a group policy.


Plus, of course, no more rescissions. No more discrimination based on pre-existing conditions. No more lifetime limits on coverage. An immediate "high risk pool" insurance policy for uninsured Americans who have been excluded from buying insurance due to an injury or illness. And, most importantly, a framework for establishing further reforms and reducing costs as we go. (See also this WalletPop rundown of the bill by Lita Epstein.)

The law also includes a scary-sounding provision called "the individual mandate."

Briefly, when the national health exchanges -- a pool from which 40 million (give or take) uninsured Americans can buy subsidized and therefore affordable policies -- are established in 2014, anyone who doesn't receive insurance from their employer will be mandated by law to purchase, at least, a basic policy. Through tax breaks the government will cover a significant portion of the premiums in the exchange, but if you choose not to buy a policy and remain uninsured, you'll have to pay an additional tax of 2.5% of your income or $625 for an individual beginning in 2016. Additionally, if you earn below 133% of the federal poverty level, you'll receive insurance through Medicaid free of charge.

Why do we need a mandate? Simply put: it mitigates risk and creates a pool which, in theory, will keep premiums low. If there wasn't a mandate, and now that insurance companies are unable to rescind policies or discriminate based on pre-existing conditions, some people would game the system by waiting until they became sick or injured to buy insurance -- thus leeching off the money that's been paid into the system by other policy-holders. Naturally this isn't fair and everyone else would have to pay increased premiums in order to finance, well, the deadbeats.

So there it is: the provision in the bill that's freaking people out the most, and on both ends of the political spectrum, but mainly on the right. Republican attorneys general, in fact, from 14 states spanning including Pennsylvania, Georgia, Virginia, Nebraska and South Dakota are filing lawsuits against the federal government claiming that the mandate is unconstitutional. The governor of Georgia actually fired and replaced the state attorney general for refusing to file a lawsuit. That doesn't seem on the level in a case involving constitutionality, but OK.

On that note, let's take a look at various arguments for and against this law.

First of all, the idea of an individual mandate was actually invented by Republicans. Sen. Orrin Hatch (R-UT), Sen. Chuck Grassley (R-IA), 1996 presidential candidate Bob Dole and 2012 presidential hopeful Mitt Romney have all vocally pushed individual mandates in the past. Romney's mandate became law in Massachusetts. Strangely, Romney is against this policy now. (To be fair, President Obama used to be against an individual mandate, and now supports it.)

Secondly, taxes have been repeatedly challenged and repeatedly ruled constitutional by a variety of courts, including the Supreme Court. (I won't bore you with the whole list, but some of the cases include United States v. Connor, Sisemore v. United States and White v. United States). The individual mandate is, below the surface, merely a new tax. That's all. If you choose to buy insurance, you get a tax break. If you choose not to buy insurance, you lose your tax break. That's all.

And what about those armed IRS agents in full riot gear storming your cul-de-sac?

Shh. A source inside the Treasury told me on the condition of anonymity that if you hand over your first born and all of your firearms to the black helicopters, the IRS soldiers will wink and move on to the next house.

I'm kidding of course. The fact is that there is no penalty or enforcement mechanism in the law for collecting the no-insurance tax under the mandate law. In other words, if you don't want insurance and refuse to pay the tax, the government will do... nothing. You won't be arrested or penalized or thrown in jail for refusing to pay the tax. It goes without saying, however, that if enough people stick it to the man, so to speak, it could nullify the positive effects of the mandate and, therefore, allow premiums and costs to rise.

Thirdly, there's an argument against the mandate that suggests it's unconstitutional to force people to buy a product from a private corporation. Admittedly, I've made this argument in the past. As someone who's been repeatedly screwed by health insurance companies, I'm not thrilled with the idea of being forced to hand over more of my money to those people. It was one of the reasons why I supported a public option as an option of good conscience. This column, though, is evidence that I've begun to make my peace with the individual mandate as I've learned more about it. And as for the public option, the passage of the reform bill has made it easier to tack on a public option sometime between now and 2014.

Nevertheless, there are numerous private corporations from which we're mandated to "buy" a product. Our largest and most contentious purchase includes the goods and services produced by private for-profit defense contractors. We also pay tax dollars to a variety of other private companies in numerous other fields, from road construction, to prescription drugs (seniors on Medicare and recipients of Medicaid mainly), to technology like computers and satellites. Just about every federal program includes private industry in the mix. And we're mandated to pay taxes into this system.

You're probably aware of the fact that Republicans support the privatization of both Medicare and Social Security. In the case of the latter, privatizing the system would force us to continue to pay into the trust fund via our usual payroll taxes, and that money would subsequently be invested in the private market. Stocks, bonds and the like. Set aside the risk involved, how is this not just another mandate to buy into a for-profit corporation -- or many corporations as the case may be?

One other question: since when are Republicans opposed to government money financing private industry? Within the health care reconciliation bill signed by the president, a new law eliminated bank involvement in the federal student loan program. Yet the Republicans opposed this legislation, and vocally preferred to keep paying the banks. It simply isn't consistent.

And finally, states can opt out of the mandate. Put another way: the lawsuits are completely unnecessary. Frivolous, if you will.

I hope I've managed to calm some of your fears about this very demonized section of the health care reform law. I think you'll find that the spookiest aspect of the overall reform law is that it doesn't do enough to control costs and regulate the insurance industry -- certainly not the ridiculous ghost stories you're hearing about tyrannical "government takeovers" and "death panels." But do let me know if you're ever arrested by armed IRS thugs for not buying insurance under the current version of the law. If so, I'll retract this whole thing and pay your fine for you.


Increase your money and finance knowledge from home

Investing in Real Estate

Learn the basics of investing in real estate.

View Course »

Understanding Stock Market Indexes

What does it mean when people say "the market is up 2%"?

View Course »

Add a Comment

*0 / 3000 Character Maximum