At this point, nearly everybody has heard of the individual mandate. But far less is known about what it is. The recent Federal District Court ruling by Judge Henry Hudson in Virginia relies on a very specific interpretation of what the individual mandate is. A change in the interpretation of what the mandate is also changes Judge Hudson’s conclusion.
Despite their current opposition, the Individual Mandate was partially a Republican idea. It was originally created by Mark Pauly for President Bush Sr. as a counter to Democratic proposals at the time for an employer mandate. It was formalized as a 1990 Heritage Foundation white paper and incorporated in the unsuccessful Republican 1994 Consumer Choice Health Security Act.
Generally, the insurance companies demanded the individual mandate as a tradeoff to required coverage. If the law required insurance carriers to accept applicants with pre-existing conditions, it raised the possibility of, as some termed it, “insurance you can buy in the ambulance on the way to the hospital”. So the individual mandate was added to keep healthy people in the insurance pool.
When the individual mandate arrives in 2016, people who do not have health insurance, whether employer-provided or individual-provided, will pay the greater of $695 per year or 2.5 percent of income. This payment will be made through the income tax. Those beneath the poverty level, or for whom insurance would cost more than 8 percent of their income, would be exempt from this otherwise-required payment.
Using the advanced legal concept of “what walks like a duck, talks like a duck…”, one might think that the individual mandate is a tax. After all, the individual mandate is (i) reported and paid on one’s annual income tax return, (ii) administered by the IRS, and (iii) calculated on income. But the Court’s conclusion in Virginia forgot about ducks, and started from the premise that the individual mandate was not a tax.
If the individual mandate were a tax, it would fall under the taxing and spending clause of the Constitution (Article I, Section 8, Clause 1). There is an extremely long list of examples where the government creates taxes to encourage or discourage private individual economic activity, as well as to raise money. There is also a direct correlation to the “general welfare” that the federal government is supposed to support. People without insurance are much more likely in the event of serious health problems to end up on Medicaid at taxpayer expense. So the government has a direct interest in encouraging people to have insurance.
So why did the Court conclude that the individual mandate was not a tax? One reason is that lawmakers changed the wording of the law during the legislative process to state that “the taxpayer shall pay a penalty” rather than “the taxpayer shall pay a tax”. Because the law was fearful of using a politically-charged word, the tax is not a tax no matter how it walks or talks like a duck. One must wonder if Judge Hudson would be just as willing to uphold a gun control ordinance if it spoke only about “possessing handguns” rather than “bearing arms”.
The ruling also states that the individual mandate couldn’t possibly be a tax because if it was perfectly successful, it would not raise any money. By that logic, tobacco and alcohol taxes aren’t actually taxes because, if they were perfectly successful, nobody would smoke or drink. Of course, no one actually thinks that the indivual mandate is not going to raise money. The Congressional Budget Office analysis of the bill said the individual mandate would raise four billion dollars.
Since the Court concluded the individual mandate is not a tax, the mandate must be analyzed under the commerce clause. The commerce clause causes the conclusion the Court provided. Whether you support or do not support ObamaCare, one needs to realize that this issue is far from resolved. Personally, my bet is that the Supreme Court will call this a tax, and ObamaCare will live until legislatively changed.