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Heritage Foundation Argues for Constitutionality of Individual Mandate

By Jack M. Balkin

In today's Washington Post, Robert Moffit of the Heritage Foundation tries to explain why the new individual mandate is not consistent with the (current) ideas of the Heritage Foundation. (As Moffit notes, the Heritage Foundation originally promoted the concept of an individual mandate, but Moffit argues that both he and the Heritage Foundation have changed their minds. The change apparently came after 2007, when Moffit publicly supported the individual mandate.)

In the process of differentiating his new views from the new health care bill, however, Moffit unwittingly shows why the individual mandate is constitutional.

There are two arguments for the constitutionality of the individual mandate. One is that the mandate is a regulation of interstate commerce; successful reform requires bringing uninsured individuals into the system because of the costs they impose on the system. Individuals who refuse to purchase insurance actually self-insure and therefore cumulatively affect commerce and Congress has the power to reach their conduct in order to make insurance reform work. The second argument is that the mandate is structured as a tax and gives individuals a choice whether to pay taxes or purchase health insurance. Moffit's arguments support both of these constitutional theories.

Moffitt explains that he and the Heritage Foundation recently changed their minds about whether the individual mandate is good public policy, citing to an 2008 article in the Harvard Health Policy Review (the link is currently broken on the Washington Post website, so I have provided the correct link here.).

The article argues that there are better policy alternatives to the individual mandate, which offer greater respect for personal freedom (in this case, negative economic liberty). My purpose is not to dispute this point, but rather to argue that the government can constitutionally choose an alternative that is less protective of economic liberty. If citizens do not like government policy choices in the economic arena, they can vote for candidates who will repeal the laws they do not like. This is exactly what Tea Party activists and other conservative groups are currently arguing for.

In the course of making his claims, Moffit explains that his preferred alternative should allow individuals to self-insure:

[E]very individual should have the freedom to self-insure. Individuals should not be forced to buy a health insurance product if they do not believe that health insurance is the best way for them to finance their personal healthcare. They should be free to make other arrangements or choose other forms of healthcare financing, such as pre-funding through savings accounts or other instruments that may emerge in a rapidly changing healthcare economy. Personal freedom, then, remains a core value in the pursuit of a sound national healthcare policy.

As noted above, the Commerce Clause argument for the constitutionality of the individual mandate argues that when individuals do not buy insurance, they self-insure and that this has a substantial cumulative effect on interstate commerce. Moffit's argument would seem to agree with this premise. As he states earlier in the article:

In the United States, the uninsured, who do not or cannot pay their hospital bills, are the major source of uncompensated care costs. Urban Institute analysts have estimated that the total national costs of the uninsured amounted to approximately $41 billion (in 2004 dollars), with the bulk of that cost being borne directly by the taxpayers through various federal and state government health programs. In the state of Maryland, the additional health insurance premium cost for family coverage attributed to uncompensated care was estimated at $948 annually. . . . Libertarian critics of the individual mandate make a compelling argument that it is a violation of personal liberty. . . . Libertarian critics make a far less compelling assessment that the growing costs of tens of billions of dollars worth of uncompensated care is relatively insignificant in the overall scheme of national healthcare spending.

Second, Moffit argues that his preferred alternative to the individual mandate should impose the equivalent of a tax penalty on uninsured individuals that would give individuals the choice of whether or not to purchase insurance.

Freedom consists in the ability to accept personal responsibility for one?s actions. Personal responsibility is not a product of external coercion, such as a mandate. It is a silly abuse of language to argue that "personal responsibility" somehow requires public officials to enact an individual mandate to make individuals do what they would not otherwise do. An individual mandate is incompatible with the internally directed exercise of the freedom of one?s intellect and will and thus alien to any concept of personal responsibility.

The mandate takes the form of a specific command. There is a world of difference between (a) issuing such a command and (b) making the range of choices and consequences plain and transparent before the choice is exercised. One may do X, and Y consequence will follow (i.e., one will get access to the bounteous benefits of health insurance and reduce one?s dependence on one?s fellow citizens); or one may choose options A, B, or C, and each of these choices, too, will come with a specific consequence that one can and will understand beforehand.

Moffit argues that the best way to serve the policy goals of the individual mandate while preserving economic liberty is to structure the mandate as a tax penalty, i.e., the loss of something of value (a tax break or refundable credit) if the individual decides not to self insure:

Ideally, tax breaks or refundable credits should be structured to enable individuals or families to secure an adequate package of benefits that would at a minimum guarantee them ample protection against catastrophic illness.

Once again, if the insurance and the subsidies are made clearly available, then one?s decision not to take advantage of the insurance and the tax break or subsidy, in writing, affirmatively rejecting both, in effect constitutes its own ?penalty.?
If an individual is offered a $2,500 tax credit, for example, to buy insurance and refuses to do so, that person obviously incurs a $2,500 tax penalty. But it is a tax penalty that is self?inflicted, not externally imposed. In either case, under the new tax regime, the law would impose a tax penalty just as it would under an individual mandate.

In fact, the individual mandate in the new health bill is structured as a tax, which presents individuals with a choice, and each choice has consequences knowable in advance. If an individual does not buy health insurance, he or she pays a penalty tax of a fixed amount or a percentage of adjusted gross income, whichever is larger.

In this way the law preserves Moffit's focus on personal responsibility. Individuals can either buy insurance or pay the tax penalty. If Moffit believes that his preferred solution involving a tax penalty is constitutional, he should also support the constitutionality of the current scheme.

The key difference between Moffit's proposal and the current health care law is that Moffit wants to structure the choice in terms of whether or not to lose a tax credit or tax deduction, while the new law structures the choice in terms of a decision whether or not to pay an additional tax.

Perhaps Moffit's view about the constitutionality of the new bill turns on this distinction. But if so, it is hard to see why Moffit characterized the loss of a tax credit or tax deduction as a tax penalty. It is especially hard to see since Moffit also argues that individuals should be enrolled in health care insurance programs unless they specifically opt out. Thus, Moffit imagines the relevant baseline for comparison to be a world in which individuals have health insurance, and people who opt out are penalized for doing so.

I think that Moffit's proposal for a tax credit for individuals who choose to purchase insurance may be a better (and dare I say it) more progressive solution coming from the Heritage Foundation. The constitutional question, however, is whether structuring the choice presented to the individual in terms of the loss of a tax credit or the imposition of an additional tax is a distinction with any constitutional difference. The answer is no. Generally speaking, where no fundamental liberty (like freedom of speech) is involved, government can structure tax incentives either way under the General Welfare Clause.

Moffit may also be arguing that structuring the choice in terms of an additional tax (instead of withholding a tax credit) violates the Constitution because it is a capitation or head tax that must be apportioned among the states by population. But capitation taxes are levied on the general population regardless of what they do, not in consequence of their actions. Both Moffit's preferred solution and the new health care reform bill structure the tax as the consequence of a choice, which subjects the individual to tax consequences. Therefore neither proposal is a capitation or head tax, even if we characterized either or both as tax penalties.

Full post as published by Balkinization on April 19, 2010 (boomark / email).