The sophistry surrounding the budgetary treatment of an individual mandate primarily involves efforts to obscure the reality of what is being attempted politically this year and to open some CBO scoring daylight beyond past precedent.  In 1994, CBO under previous management was rather unambiguous in concluding that the Clinton administration’s health security proposal would establish a federal entitlement to health benefits and a system of mandatory payments to finance them through regional and corporate “alliances” acting as agents of the federal government.  Hence, those premium payments would be shown on-budget as government receipts, rather than as offsets to spending.  Then-CBO director Robert Reischauer, to his credit, took that stance despite substantial political pressure to rule otherwise.  

In the latest round of hiding a budgetary sow’s ear inside a smaller silk scoring purse, the CBO brief of May 27 bends but does not completely break its older rules.  It moves toward a sliding scale standard, to mimic the ambiguous and elusive nature of what had been publicly described in various proposals by the current congressional leadership (as opposed to what was ultimately intended to unfold in practice later). On the one hand, CBO carefully lays down some markers for boundary lines between on- and off-budget treatment of mandated premium payments and insurance exchange transactions. Essentially, components of proposals that provide federal government financial backing for a public insurance plan option, require those not complying with coverage mandates to pay penalties to the federal government, and redistribute funds between plans through risk adjustment all clearly involve on-budget federal outlays and/or revenue. CBO also sets rough thresholds for when a largely private-sector system (even with tight regulation or an individual coverage mandate) morphs into a government program with insufficient choice among insurance plans, insurance companies, and levels of coverage. No more than two specific levels of coverage (how about three?), very high minimum actuarial values (more than 80 percent), and public plan domination of an exchange-based market (approaching two-thirds; see John Shiels about that….) all are characteristics that tilt the budgetary balance toward treatment as a fundamentally governmental system. 

For the time being, most members of Congress and the Obama administration remain reluctant to free their inner socialist (or should I say, “social democrat" or "progressive,” to be more politically correct) child and make more transparent the sort of health care transformation and revenue extraction quantities they may prefer ultimately. Even though the basic starting points and presumptions of the major draft bills before congressional committees  all lead in that direction one way or another. The gross amount of Washington’s takeover of private sector resources actually is more significant, politically and economically, than the “net” amount that shows up as the latest up tick in our structural budget deficits. Hence, the imperative to dance around the unofficial fiscal realities and continue efforts to mask them through not-even-clever-by half scoring devices. One should expect, as a result, ultimate legislation that sets down a basic structure empowering further expansion of government-directed health care, but with most of the implementing details left to be filled in through later regulation or subsequent “oops, we did it again” legislative adjustments.

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The sophistry surrounding this issue could be avoided if we copied the social-insurance approach used in continental Europe – e.g., in Germany. There the private, non-profit sickness funds are that in name only. They bear so many government mandates and are subject to so much regulation as to be effectively arms of the government.

Yet the premiums they collect from enrollees and expenditures on their health care do not flow through the federal or state governments. They are never pitted against items in the government’s formal budgets.

Transferred to the US, any public plan, such as it may be, would be kept outside the regular federal government. Premiums paid to that plan would not appear in the federal budget as revenue or spending offsets, nor would any expenditure the public plan makes.

The only money showing up in the formal federal budget would be any subsidies the government makes towards the premiums of low-income families enrolled in the public plan or in any competing private plan. These subsidies, of course, would be financed by general taxation.

Such a setup would spare the CBO its Talmudic studies of this issue.

Our habit in this country of turning even the smallest thing we do in health care into an administrative nightmare is truly sad.

Any time the government requires someone to make a payment that they would not have made voluntarily, it is a tax. While this is not necessarily true in a legal sense, it will certainly feel like a tax to those who are compelled to purchase insurance, even for those receiving subsidies.

On one level, it doesn’t matter whether all or part of the cost of the individual mandate appears on the federal budget. For example, you could count all expenditures for the purchase of insurance as federal expenditures while counting individual premium payments as tax revenues (assuming the data could be collected). The difference would be equal to the amount of federal subsidies, which is the net federal cost of the program.

Alternatively, we could just record the amount of federal subsidies under the mandate in the budget as an expense and leave off premium expenditures and revenues. Under either accounting, the net federal cost of the program is identical (i.e., the amount of the subsidies), as are the implications for coverage. So there is no substantive difference attributable to the accounting methods used.

On a political level, the way in which the mandate is expressed in the federal budget could be pivotal. It’s a matter of “optics” as my capital hill friends like to say. A huge increase in what appears as expenditures on the budget could be seen as a frightful rebirth of “big government.” Recording premium payments as tax revenues could be the coup de grace that sends legislators running for cover. Who needs that?

The ideal accounting for health reform would be one that is politically neutral. A separate off-budget account could be established that similarly records the costs and revenues of a coverage mandate whether it is a single-payer system or an individual mandate. Only the net cost to the federal government (i.e., spending less designated revenues) need be recorded in the federal budget for us to preserve “good government.”

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From a public opinion and political perspective this issue does matter. Rightly or wrongly the public does not see government requiring them to have auto insurance, seat belts, or a fire extinguisher in their home as a tax increase. If the individual health insurance mandate goes through the federal budget and people have to make out checks directly to the federal government, it will be perceived as a tax increase. This is a very difficult environment in which to propose middle-class taxes for new programs, even popular ones such as health care reform. Today, 54% of Americans describe the state of their own personal finances as not so good or poor. This compares to a 30% figure in January 2000. At this point in the recession the public is in a sour mood when it comes to raising taxes. When recently asked if it was a good idea or bad idea to raise taxes in an economic downturn, 69% said bad idea. The only middle-class tax increases for health care receiving substantial support are for increased taxes on cigarettes, beer and wine. This anti-tax mood was clearly evident in the defeat of multiple California referenda that would have raised taxes to sustain health care, schools, and human services programs. Occasionally, pollsters (in this case a professor) are asked to behave like weather forecasters. Unfortunately, I see a storm brewing over middle-class tax issues and health reform. This is the wrong climate to add other tax raising issues into the debate.

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