post by Paul Kelleher (@kelleher_)
Last May Timothy Jost wrote:
Fifth, both plans penalize Americans who choose to remain outside the insurance market, undermining the risk pool. The “individual mandate,” which imposes a tax penalty on Americans who can afford health insurance but choose not to buy it, is one of the most controversial provisions of the ACA. The Republican tax credit, however, is offered only to Americans who purchase health insurance. An incentive available only to those who comply with a condition is the exact economic equivalent of a penalty imposed for noncompliance with the same condition. Indeed, the price of remaining uninsured imposed by the Roadmap will in most instances be greater than that under the ACA.
In response I wrote:
I’m not sure if “exact economic equivalent” is a technical term. I assume it is. But to a lay person, this just seems wrong. In the Ryan framework, if you forgo insurance, you forgo a benefit (the tax credit). In the ACA framework, if you forgo insurance, you incur a penalty (the tax penalty). Only in the latter case are you made worse off by forgoing insurance (setting aside the benefit that insurance itself may confer).
Saying that the credit is the equivalent of a penalty seems, therefore, to be akin to saying that benefits are equivalent to harms. But that can’t be right, can it? If Congress wanted everyone to buy a state-made car, it could require them to on pain of penalty, or it could give them a discount (same as a credit) if they chose to buy. Surely these are different. If not “economically” then morally. Or am I missing something?
Fast forward to last week, when Ezra Klein wrote a column entitled "Individual mandate is Ryan Tax credit by other name." I was prepared for Klein simply to repeat Jost's claim, but Klein instead added a key dimension that Jost leaves out:
The tax credit, meanwhile, is essentially indistinguishable from the mandate. Ryan’s plan offers a $2,300 refundable tax credit to individuals and a $5,700 credit to families who buy private health insurance. Of course, tax credits aren’t free. In effect, what Ryan’s plan does is raises taxes and/or cuts services by the cost of his credit and then rebates the difference to everyone who signs up for health insurance. It’s essentially a roundabout version of the individual mandate, which directly taxes people who don’t buy health insurance in the first place. [...]
Here Klein observes that a tax credit is akin to a mandate only if uninsured individuals face the prospect of being made made worse off either by a commensurate increase in taxes or reduction in services. This background assumption has not always been made explicit by those claiming that a tax credit is the same as a mandate, but it seems to me a precondition for characterizing them as as "exact equivalents." It is still not clear to me that this was an assumption Jost was making.