Obamacare mandate much like status quo

The legal wrangling over President Barack Obama’s health care law is heating up. The 11th U.S. Circuit Court of Appeals in Atlanta recently announced that it would expedite its consideration of one constitutional challenge to the law.

The case centers on the law’s individual mandate – the requirement that all Americans to buy or otherwise obtain health insurance. Obamacare’s detractors are holding out hope that the courts will invalidate the mandate – and effectively repeal the law.

But turning back the individual mandate will do little to prevent the government from taking over Americans’ access to health care. In fact, the mandate is simply the flip side of the decades-old status quo, whereby the feds subsidize our employers’ control of our health dollars.

Opponents of Obamacare should not stop at overturning the law. They also must replace it with reform that puts patients – not employers or the government – in control of our care.

To see why the individual mandate is not all that different from the status quo, which provides employers with tax incentives to provide health benefits to their employees, consider the following scenario.

Alice Smith and Barry Jones are two average workers. Alice makes $50,000 a year and receives non-taxable health benefits worth $4,500 from her employer. Barry earns cash wages of $54,500 and receives no health benefits. Before taxes, Alice and Barry each receive $54,500 in total compensation.

If both Alice and Barry are taxed at a flat 10 percent – just to keep things simple – then Alice pays $5,000 a year in taxes, while Barry forks over $5,450. Alice enjoys less after-tax income ($45,000) than does Barry ($49,050). But, factoring in Alice’s $4,500 in health benefits, she receives a net $450 more than Barry – $49,500 versus $49,050.

Although oversimplified, this scenario represents the current state of America’s health care marketplace.

Under an individual mandate, the reality will not be all that different. Alice’s employer quits offering health coverage and, instead, gives her cash for the $4,500 it previously spent on benefits, perhaps to buy government-designed health insurance in an “exchange.” Assume also that Barry faces a $450 fine for failing to buy insurance. Finally, suppose that the government is only interested in receiving the same tax take as before – $10,450.

Now, let’s lower the income tax rate to 9.1743 percent. Both Alice and Barry pay $5,000 in taxes on $54,500 of income, but Barry will also be fined $450. If you do the math, you’ll see that Alice, Barry, their employers, and the government all experience exactly the same cash flow as before.

The point is that the two systems achieve the same economic ends. Fining consumers for not buying health insurance is the reverse of subsidizing them for buying it.

The real problem with Obamacare is not its mandate, but that – unlike our simple example – it hikes taxes dramatically and gives the federal government the power to dictate what treatments you can get.

That’s why simply invalidating the individual mandate won’t fix health care. True reform can only take place once we tear down the employer-monopoly insurance system and replace it with one in which patients are in the driver’s seat.

Envisioning a consumer-driven system is not difficult. We don’t get our homes, cars, groceries, or clothing from our employers. In the absence of individual choice and responsibility, costs spiral wildly.

Both Obamacare and the previous status quo deprive consumers of our own healthcare dollars. Scrapping the individual mandate is a start – but until the government gives individuals the tax break it now gives our employers, patients will suffer.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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