By John McClaughry
The House and Senate health care committee chairs in Montpelier are pondering new adventures in health care policy for 2018. High on their list is a Vermont individual insurance mandate.
The mandate to purchase government-approved insurance has had a four year run in Washington. It was made a cornerstone of Obamacare because older people are sicker than young people. If health insurance premiums are set according to an age group’s risk of incurring medical expenses, the premiums for sixty-year olds will be as much as five times the premiums for twenty-year olds.
But when the small business and individual insurance pool is community rated (as Vermont’s has been since 1993), all policy holders must be charged the same premium for the same coverage regardless of age. Thus young, healthy people will be made to pay far above their age group’s expected medical expenses. Their (under 65) grandparents will pay far less than their age group’s expenses.
Faced with far higher premium costs, many young healthy people simply “go bare” without insurance. Without the young, healthy people in the pool, the increasingly older (and sicker) pool will require ever rising premiums. This leads to the “death spiral”. To prevent this, the government has to use compulsion to keep the young and healthy in and paying. That’s the individual mandate.
Starting in 2019, Congress’s repeal of the Obamacare individual mandate will relieve young healthy Vermonters of the threat of a tax of $695, or 2.5% of income, for not buying a Federal government-approved health plan.
Sen. Claire Ayer and Rep. William Lippert do not want those people to drop their insurance. They are seriously considering shutting off this exit ramp for the young and healthy by creating a Vermont individual mandate to buy state-approved insurance. Then the young and healthy would continue subsidizing the premiums of the older and sicker.
This is “Robin Hood in Reverse”. The State requires young people starting off in life, at the bottom rung of their lifetime income ladder, paying off education loans, planning to raise a family and buy a home, to subsidize people forty years older, at the top of their lifetime earnings, their children grown and gone, and their mortgage paid off.
Whenever a proposal for a state purchase mandate raises its head, the first question one should ask is, “Or else what?”
Will the State levy a tax on you for not buying health insurance, like the now repealed ObamaCare provision? Will it take away an income tax exemption? Will it confiscate your income tax refund? Will it garnish your wages? Will it suspend your professional or business license? Your hunting and fishing license? Your driver’s license?
Lippert notes that Massachusetts has had a state insurance mandate since 2007. The enforcement mechanism there is a denial of the personal income tax exemption. However the new Federal tax bill abolishes the personal exemptions used in computing Federal taxable income, which is used for Vermont income tax purposes. To deny those exemptions would require Vermont to create them, which would require major changes in how Vermont taxes income.
There is, however, a far better way than invoking state power to mandate that all Vermonters purchase insurance. It is to hold uninsured persons personally responsible for paying the medical bills they incur. We have long done this for “deadbeat dads” who won’t make court-ordered child support payments.
Since 1994 the Ethan Allen Institute has advocated “income tax-based recapture for unpaid medical bills run up by persons who choose to spend their resources on things other than adequate health insurance. Mandating that people buy health insurance of the state’s choice is an invasion of their freedom, but on the other hand, there is plenty of justification for dunning people who run up medical costs and expect others to cover them through higher premiums.”
Under the personal responsibility alternative, the uninsured patient would be required to pay down an unpaid balance through income-tax payments year after year until it is retired.
This says to the person who prefers not to obtain insurance: “Your government will not fine you for failing to buy health insurance. But if you are unlucky enough to run up a big medical bill that you can’t pay from your assets, you will be paying a piece of it off every year at tax time, possibly for the rest of your life. Are you sure you wouldn’t prefer to protect against that by investing in a high-deductible insurance policy with limited mandates, with a cap on out-of-pocket payments, and with your own tax-free Health Savings Account?”
A state insurance purchase mandate is a repugnant to individual liberty. Holding people responsible for the medical expenses they incur is not an invasion of liberty. The choice couldn’t be more clear.
John McClaughry is vice president of the Ethan Allen Institute.