Paul L. Caron

Monday, October 22, 2012

The Single Word That Could Make or Break ObamaCare: Tax

The Atlantic:  The Single Word That Could Make or Break Obamacare, by Naomi Schoenbaum (George Washington):

Obamacare has been one of the yardsticks of Obama's term in office and one of the touchstones of the 2012 election. Last night's presidential debate was no exception, with health care reform mentioned at least half a dozen times. But an important piece of the discussion has been missing: is the health care law a tax or a penalty?

It turns out how Americans perceive the health care mandate could affect whether they end up purchasing health insurance at all, and therefore whether the law achieves what it was meant to do. During the next four years, the way the president chooses to frame the law will have a large impact on its policy future.

The health care law's individual mandate requires that Americans purchase health care insurance. The financial consequences of refusing will be the same whether we say that the mandate requires you to pay a tax or pay a penalty. The purely rational actor would not quibble over terminology, then.

Or so we would think, if it weren't for an entire field of research known as behavioral economics, which shows that our decisions are about more than just dollars and cents. In particular, the way we frame the options we have influences which option we choose. For instance, people will tend to spend money more if they think the money they are receiving is a $1,000 "bonus" payment rather than a thousand dollar "rebate" payment. The dollar amount might be the same, but the framing of it is different.

In other words, what we call things matters. And labels matter when it comes to the health care law as well. Much discussion was devoted to the political costs of framing the mandate a tax as opposed to a penalty, but much less discussion was given to the policy costs of this label. (Solicitor General Donald Verrilli raised this issue briefly during oral arguments before the Supreme Court.) With the mandate not due to go into effect until 2014, it is too early for us to have direct empirical data about how framing will matter for the health care law in particular, except the data showing that Americans still have "confusion" about what the law is. But there is extensive experience and research suggesting that framing it as a tax might reduce the number of people who comply.

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