July 2, 2012

Some Thoughts on the Affordable Care Act

It is constitutional to collect taxes based on things citizens consume, do, or do not do. That's the basis for the Supreme Court's ruling that upholds the Patient Protection and Affordable Care Act.

From both an economic and financial standpoint, these types of taxes (usually excise taxes) are imposed to encourage, discourage, or help pay for the costs associated with a product or service. A common one is the tax on cigarettes.

Cigarettes are taxed because there is an external cost associated with their consumption that will not otherwise be borne by the manufacturer, retailer, or consumer: health problems and the associated cost for treating them.

There are many who consider health care to fall under the category of a social service similar to police, fire, military, unemployment insurance, etc. Truthfully, most of the rest of the first world considers it as such. In fact the UN includes it as a human right, much like the U.S. constitution lists the pursuit of happiness and freedom. In such a situation, barring universal government-provided health care, the current reform bill is a halfway measure towards that.

The tax is thus a mechanism (albeit a somewhat unbalanced one due to its small dollar amount) by which to still rely primarily upon private health insurance companies while moving towards universal coverage. That's also why the majority of provisions in the bill are designed to prevent the private insurers from rejecting applicants or denying coverage.

A different implementation would have been to expand Medicare and Medicaid to cover all citizens and increased taxes or reallocated spending to cover the additional cost. Then the arguments around being forced to buy something would sort of be moot in the same way you are "forced to buy" other government services via taxation. But that couldn't get past the Republicans and the health insurance industry lobbyists.

In one ways, the tax associated with the reform bill is similar to Medicare/Medicaid because it is a progressive tax: the amount you have to pay for not having purchased health care is dependent upon your income. Taxpayers currently pay into Medicare and Medicaid based on their income.

History and economic theory has shown that the universal safety nets provided by government services like the police, fire departments, military, education, and also health care have a net positive effect on economic growth, social stability, and technological advancement. By contrast, environments at odds to that have a net negative effect as seen in the reaction of financial markets to war.

One example of the benefits of support services and safety nets are individuals being more likely to quit their current job to start a new business without having to worry about reduced income affecting their family's health or safety. (e.g. the police, fire departments, military, schools, etc. won't stop providing services to that family.) Likewise, with less basic living necessities riding upon a paycheck, individuals are less bound to indentured servitude.

An argument against this is that providing too many basic services can discourage individuals from actually contributing to society. And this has happened in some countries where social protections and safety nets have gone too far and tipped things upside down. The right balance is to provide enough to keep people safe and healthy without providing enough to satisfy their recreational and entertainment desires. (Plus, there is always a percentage of people who will produce for the sake of producing or advancement of technology.) I don't believe health care risks pushing the balance too far.

Posted by josuah at July 2, 2012 5:09 AM UTC+00:00

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