During our debates over the merits of Obamacare, rhetoric about freedom and liberty has largely been used to attack the law. Largely absent from the debate are the ways that Obamacare improves our individual liberty. I argue that the freedom benefits from the law have been understated because they involve freedom from our employers rather than freedom from government power. I also argue that the freedom costs of the law have been exaggerated due to a political dynamic that encouraged both reform supporters and opponents to portray the individual mandate to purchase health insurance as an actual mandate, rather than what it really is: a tax incentive.
1. Understated freedom gains: Reducing job-lock
First, I have been meaning to flag this post from Nicholas Bagley describing how Obamacare reduces the problem of job-lock. Job-lock is the result of our employer-sponsored health insurance system. Employees face high obstacles to changing jobs because doing so would disrupt their health insurance.
Obamacare subtly shifts this regime away from employer-sponsored insurance and therefore reduces job-lock. Bagley points out the major ways that the law accomplishes this. Most importantly, it breathes life into previously dysfunctional individual insurance markets. This gives Americans – particularly those eligible for subsidies – a plausible alternative outside of employer-provided insurance.
Second, it bans insurers from excluding people with preexisting conditions. This means that an employee with a preexisting condition is no longer locked into their existing job for fear of being excluded if they try to change jobs and insurance carriers.
Certainly our tax regime still favors employer-sponsored insurance by excluding it from income taxation. This amounts to a massive government subsidy for employer-sponsored insurance which continues to make it the most favorable way for most Americans to insure. But, as Bagley explains, Obamacare’s subsidies for individuals and families below 400% of the federal poverty line partially offset the value of the tax exclusion, gradually leveling the playing field between employer-sponsored insurance and individual insurance sold on the health exchanges.
The reduction in job-lock is, more broadly, emblematic of how Obamacare improves individual liberty. The law’s opponents have vigorously argued that the law is domineering and restricts freedom, zeroing in on the individual mandate to purchase health insurance. But Obamacare improves freedom in other significant ways. It reduces job-lock, improving our freedom to pursue new career opportunities. It guarantees freedom from suffering from lack of treatment for people with preexisting illnesses. It assures freedom for the insured sick by abolishing lifetime and annual coverage caps.
Our arguments about freedom in the United States have a distinctly libertarian bent. We think about freedom in terms of what the government does to impose rules on us or otherwise coerce us. This is a product of our history and our national inception, but is also an incomplete account of human freedom. On a day to day basis, some of the most vexing constraints on our freedom are non-governmental – constraints like our health and our employers. Obamacare takes meaningful action to protect our freedom by lifting burdens in our job and health decisions.
2. Exaggerated freedom costs: The individual “mandate”
Obamacare’s opponents also severely overstate the individual liberty costs of the law flowing from the individual mandate. They did this by deliberately ignoring a key truth about the mandate that neither conservatives nor liberals want Americans to know: that it’s not really a mandate at all.
Mandates in general entail high freedom costs because they are compulsive – they require us to do something (like register for the draft or pay taxes) or forbid us from doing something (like driving without auto insurance). Tax incentives, on the other hand, are not compulsive but merely raise the costs of doing something that the government discourages, like buying cigarettes.
In truth, the individual mandate is really no more than an economic incentive. It imposes a tax on going uninsured – a tax that, in 2016 and beyond, equals the greater of $695 or 2.5% of adjusted income. There is no criminal sanction backing up the individual mandate. Even the tax penalty can only be assessed by the IRS withholding from your tax refund, leaving unclear if it would apply to people who aren’t due any refund.
So the mandate functionally acts to incentivize people to buy health insurance. It skews the calculus of a person’s decision about whether or not to buy health insurance. Before, the question an individual faced was simply whether health insurance was worth the price of the premium. This depended on how healthy they expected to be, how many medical costs they anticipated, and how risk averse they are. Now, this calculus is different: the question is whether an individual wants to pay a fee to the government and get nothing in return, or purchase health insurance.
When seen through an economic lens, the individual mandate is no more of a mandate than the first-time homebuyer’s tax credit is. The difference is that the individual mandate was bound up in rhetoric asserting that it was compulsory. If the mandate is really just meant to nudge people toward buying insurance, then why didn’t the government say that? There are two principal reasons: one political, and one administrative.
The political reason is that the Obama administration feared calling the mandate a tax and being accused of raising taxes on the middle-class. Because of this, the administration repeatedly publicly denied that the mandate imposed a tax, while admitting that it did exactly that in court.
Now perhaps, in hindsight, this was a miscalculation. Instead of raising the ire of anti-tax activists, the individual mandate inflamed Tea Party resistance driven by deep concerns about freedom and liberty. People forget that the anti-mandate movement initially started as a left-wing rebellion. In 2009, liberals dismayed by the demise of the public option – a proposed government-sponsored health insurance plan – lashed out against the individual mandate. Liberals did not object to the idea of compulsory universal health care per se, but specifically objected to a universal scheme dependent solely on private, for-profit health insurers. Howard Dean, conveniently illustrating both general misunderstanding about the mandate and the liberal position against it, said that the individual mandate “makes [Americans] criminals if they don’t buy insurance from the same companies that got us into this mess.”
While liberals eventually fell in line behind the mandate, conservative and libertarian activists litigated the mandate all the way to the Supreme Court under the banner of freedom. This backlash may seem avoidable, as it was a direct result of the administration’s rhetorical choice to present the mandate as compulsory. But there were more compelling reasons to describe it as a mandate rather than a tax besides political posturing. Namely, the structure of health care reform works a lot better if people buy insurance instead of opting to pay the tax penalty. Obamacare’s insurance expansion depends heavily on the healthy subsidizing the sick, as all health insurance does. If healthy people thought of the mandate as a mere tax penalty, more of them might choose to just pay the penalty rather than purchase insurance. This would leave us with a sicker pool of insured people, making universal health insurance harder to sustain.
On the other hand, if healthy people thought that the mandate was actually mandatory, they become more likely to purchase health insurance and provide critical financial support to the health care expansion. The Obama administration thus wanted people to believe that the mandate was what it claimed to be: compulsion to buy health insurance. Admitting otherwise would come at the expense of compliance, threatening the foundations of the health care expansion.
The moral justifications for compelling or incentivizing some people to subsidize care for others are questions I’ll address in another post. For now, however, my point is that the individual liberty costs from Obamacare have been oversold. The individual mandate is a misnomer. Despite all the rhetoric, it’s no more than a tax incentive.
On net then, I believe that Obamacare increases our individual freedom. It protects our freedom of health by loosening its dependence on our employers. It also imposes lower costs on our freedom than is widely believed because the individual mandate has been deliberately mischaracterized as something more compulsive than the tax nudge it really is.