Connecting an Individual Mandate to the Budget: What's the Big Deal?

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.

Thomas P. Miller is a resident fellow at AEI.

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