The Spectacle Blog

The Obama-Baucus Middle-Class Tax Hike

By on 9.21.09 | 11:59AM

President Obama, who opposed a health insurance mandate during the campaign and has vowed not to support a middle-class tax hike, has come out in favor of a mandate that would raise taxes on those in the middle class who do are uninsured.

During an exchange with George Stephanopoulos on Sunday, President Obama tried to deny that a mandate was the same as a tax increase, even when confronted with a dictionary definition:

STEPHANOPOULOS: I -- I don't think I'm making it up. Merriam Webster's Dictionary: Tax -- "a charge, usually of money, imposed by authority on persons or property for public purposes."

OBAMA: George, the fact that you looked up Merriam's Dictionary, the definition of tax increase, indicates to me that you're stretching a little bit right now. Otherwise, you wouldn't have gone to the dictionary to check on the definition. I mean what...

STEPHANOPOULOS: Well, no, but...

OBAMA: ...what you're saying is...

STEPHANOPOULOS: I wanted to check for myself. But your critics say it is a tax increase.

OBAMA: My critics say everything is a tax increase. My critics say that I'm taking over every sector of the economy. You know that.

Look, we can have a legitimate debate about whether or not we're going to have an individual mandate or not, but...

STEPHANOPOULOS: But you reject that it's a tax increase?

OBAMA: I absolutely reject that notion.

Yet the idea of a mandate as a tax does not merely come from Stephanopoulos, or critics, or Merriam Webster, but from language in the current draft of the Baucus bill itself. In fact, on page 29, the Baucus proposal reads, "The consequence for not maintaining insurance would be an excise tax....The excise tax would be assessed through the tax code and applied as an additional amount of Federal tax owed."

Obama argues at another part of the interview that, "right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase." But there are many reasons why this is a flawed analogy. Most importantly, car insurance mandates, which apply at the state level, only apply to people who drive a car on public roads. If I don't drive, I don't have to purchase car insurance. By contrast, the health insurance mandate would apply, with few exceptions, to everybody in the United States. Also, people aren't forced to report car insurance in their federal tax returns, and fines are not assessed through the federal tax code. And if car insurance mandates are the model, then they certainly aren't effective, with an estimated 13.8 percent of drivers going without coverage in 2007, according to the Insurance Research Council.

Obama also argued:

You and I are both paying $900, on average -- our families -- in higher premiums because of uncompensated care. Now what I've said is that if you can't afford health insurance, you certainly shouldn't be punished for that. That's just piling on.

If, on the other hand, we're giving tax credits, we've set up an exchange, you are now part of a big pool, we've driven down the costs, we've done everything we can and you actually can afford health insurance, but you've just decided, you know what, I want to take my chances. And then you get hit by a bus and you and I have to pay for the emergency room care, that's...

So, Obama is saying that nobody who can't afford health insurance will be forced to buy it, but he has an odd definition of "affordable." Under the Baucus plan, individuals would face a tax of at least $750 if they do not purchase health coverage. And while the proposal would provide subsidies to lower-income Americans, those subsidies would stop at 300 percent of the federal poverty level. What that means is that a family of four with a household income above $66,150 would face a tax of $3,800 if it does not obtain health insurance, while an individual with income above $32,490 would face a tax of $950. While the proposal would in fact waive the requirement for individuals who can prove they can't afford a minimal health insurance policy as defined by the government, to qualify for the exemption, premiums would have to exceed 10 percent of adjusted gross income -- or somewhere in the neighborhood of $3,000 for somebody with income of $32,490.

Then there's this larger idea of uncompensated care. While it is true that some people end up showing up in emergency rooms without paying and that imposes costs on others, there's two things that Obama isn't taking into account. First, just because you mandate coverage it doesn't mean you eliminate the uncompensated care. Second, if you have to spend hundreds of billions of dollars on subsidies enabling people to purchase insurance, then that costs far more than whatever would be saved by reducing uncompensated care.

In a prior article for our magazine, I looked at the Massachusetts example -- the only state with a health insurance mandate:

In 2006, Massachusetts enacted a landmark health care reform that increased coverage by expanding Medicaid eligibility and providing subsidies for citizens to purchase coverage on a state-run insurance exchange. As more people obtained insurance to comply with a mandate, uncompensated care declined by 38 percent between 2006 and 2009 (projected), saving the state $246 million. However, the Commonwealth Care subsidy program created as a result of the 2006 reform is projected to cost $820 million in 2009 alone, and during the same time period, the state’s expanded Medicaid program saw its price tag swell by $1.1 billion. So in other words, while costs declined by a quarter of a billion dollars in one area, they increased by nearly $2 billion in other areas.

The other thing to keep in mind is that while Obama likes to describe those who are uninsured by choice as freeloaders, there's a flip side to this. Many of those who are currently uninsured simply have very low health care costs, which they are willing to pay out of pocket when they get sick. The reason why Obama supports a mandate is that he wants to be able to force insurers to cover those with preexisting conditions, and the only way to do that is to bring uninsured healthy people into the system. So really, this isn't about eliminating freeloaders, it's about forcing healthy people to pay for more health care than they need to so that they can make premiums more affordable for the sick.

I think candidate Obama had this one right when he talked about mandates last year. "In some cases, there are people who are paying fines and still can't afford it, so now they're worse off than they were,” candidate Obama said during a February 2008 debate, referring to conditions under the Massachusetts mandate. "They don't have health insurance and they're paying a fine."

Send to Kindle

Like this Article

Print this Article

Print Article