Now that the Supreme Court has upheld Obamacare, and individuals are mandated to purchase their own health insurance, it’s time to roll back policies designed to protect citizens from themselves. If individuals engage in activities that eventually cause them to use the healthcare system more, it is harder than ever to make that case that this is the business of any other taxpayer. Nanny state policies can no longer be rationalized by the hackneyed argument that without such policies we all pay the higher health care costs of our fellow citizens who make unwise choices. If nearly everyone has their own health insurance, we won’t. Health insurers are free to charge higher premiums for persons making unhealthy decisions, but it should no longer the business of other citizens/taxpayers.
Chief Justice John Roberts’ decision to call the penalty for failure to purchase health insurance a “tax” has received much attention but it is probably not controversial to most economists. Economists are taught to view fees, penalties or taxes in the same way. Pigouvian taxes are penalties assessed for economic activities that cause negative externalities such as pollution. Non-economists may be offended that businesses can buy their way out of certain regulations (through paying a penalty or tax) but economists view this approach as more efficient than strict prohibitions.
Economists are also taught that trade-able quotas are the same as a tax (as long as the quotas are auctioned off rather than given away). The Obama administration’s controversial cap and trade policy for emissions was similar to a tax/penalty. An important difference between the individual mandate in Obamacare and cap-and-trade is that once a person pays the penalty/tax to avoid the health insurance mandate, the “permit” allowing a person to remain uninsured can’t be traded to other taxpayers. A polluting company that buys a trade-able pollution permit can sell that permit to others.
The Obamacare tax is fairly unique in that it is assessed on inactivity rather than activity. State “click-it or ticket” laws that fine drivers for failure to wear a seatbelt also penalize citizens for inactivity. Although there is no Federal mandatory seatbelt law, the Federal government provides grants to states for stepping up their enforcement of state seatbelt laws.
The economic rationale for mandatory seatbelt laws is especially dubious if drivers have health and auto insurance. Mandated seatbelt laws are different from speeding laws which are intended to mitigate the negative externality cause by speeding (the increased chance of injury for other drivers and passengers). If anything, the tax for failure to wear a seatbelt could cause drivers to take fewer precautions while driving because their own risk of injury is diminished.
A silver lining in the Supreme Court decision on Obamacare is that politicians who typically argue for collective solutions to problems are advocating personal responsibility in the health insurance market. If only these politicians would extend the personal responsibility argument to other choices that impose no negative externalities on others, like the purchase of a 44 ounce sweetened beverage or the decision to forego a seat belt.