ObamaCare, the ‘Mandate’ and Milk Cows

In programs to cover the cost of healthcare, at least one simple truth prevails: Everybody in the program is either a ‘net-positive’ or a ‘net-negative.’ If the program does not have enough voluntary net-positives to fund the cost of the net-negatives, the balance still has to be made up somehow. ObamaCare has chosen to make up the balance using Milk Cows—people who are coerced into the program mainly because the government wants their money.
No aspect of the 2010 health insurance reform package is more controversial than the “mandate”—a special tax imposed on people who don’t buy qualifying health insurance. The mandate is almost certainly constitutional under the lax standards used by today’s Supreme Court, but that does not make it any less obnoxious to liberty. The mandate is, both in effect and intent, a law that forces people to spend their money in a certain government-approved way. That is a direct affront to liberty.

The point of the mandate is to reduce the number of uninsured Americans, an admirable goal. But it furthers this goal in ways that show a hostile disregard for liberty.

The heart of the mandate is the special new tax. The point of this tax is to coerce a minority of individuals not just to buy insurance for themselves but to pay for the health insurance of strangers as well.

Net-Negatives and Net-Positives
Here’s the problem: In any medical insurance program there are always going to be two groups of participants, the “net-positives” and the “net-negatives.”
  • The net-positives are people who, on an actuarial basis, will predictably pay more in future premiums than they will cost in future medical services.

  • The net-negative group contains the people who will cost more in future medical services than they will ever be able to pay in premiums—including the elderly and the chronically ill.
  • With actuarial tables, statistical studies and everybody’s medical records, it’s pretty easy for the health insurance providers (and now, the government) to tell who’s in each group. (Note).

    The Need for Net-Positives
    Any health insurance program that includes net-negatives has to also have net-positives or else it will go broke. To some extent, an insurance program can depend on voluntary net-positives for this purpose.

    The reason people are willing to participate as voluntary net positives is that, as individuals, we never know if we will be the ones who will later be struck with a bad medical situation. To guard against the uncertain future, a lot of people are willing to pay insurance premiums to protect themselves and their families in case a bad situation arises unexpectedly. This is the ordinary “insurance” function of a health insurance program.

    There are, however, a lot of people who already know that they have a costly medical condition. They already know that they are actuarial net-negatives—and the health insurance companies also know it, from their records, formulas and tables.

    In order to reduce the number of uninsured Americans, ObamaCare forces the insurance companies to extend coverage to persons who are already actuarial net-negatives. The difficulty is that, to cover this new influx of net-negatives, the insurance companies say they will also need an influx of new net-positives. They say that they cannot depend on the voluntary participation of enough net-positives to cover the added cost all the new net-negatives.

    Milk Cows
    This is where ObamaCare turns to the use of Milk Cows—people who are forced to buy insurance mainly because the government wants their money.

    The source of the needed Milk Cows is the large pool of potential net-positives who don’t already have health insurance. Presumably, the main reason they don’t have insurance is that they view the prevailing premium rates as disproportionately high compared with their perceived risk of needing treatment. Being typically young and healthy, these potential net-positives are probably correct to conclude that, as to them, the prevailing premiums are too high. (After all, remember that the prevailing premiums must include a “surcharge” to cover the net-negatives; that’s the whole point.)

    At any rate, here’s the bottom line: Any health insurance program that adds new net-negatives at prevailing “affordable” premiums will have to either (a) get an external subsidy (such as taxes) or (b) get new net-positives into the program, by coercion if necessary. ObamaCare has chosen the option of coercion, imposing a special tax intended to force people to become Milk Cows. But the rub is: Nobody likes to be a Milk Cow.

    Now it’s true that today’s apparent “Milk Cow” might someday turn out to be net-negative. You never know. As a group, however, the Milk Cows are people who are actuarially net-positive. And they resent being commandeered to pay what amounts to a special assessment to subsidize a national program that the wider taxpayer base is unwilling to subsidize.

    It is bad enough from a liberty standpoint that ObamaCare forces Milk Cows to pay for insurance they would not buy voluntarily. But what is even worse for liberty is that the Milk Cows are forced to spend their money subsidizing the premiums of strangers, net-negatives who do not (and usually cannot) pay their own way.

    In short, under ObamaCare the nation is creating a legion of Milk Cows and is taking their liberty to make their own spending choices on how to use their own money. It is, at the very least, highly doubtful that this impingement on liberty would meet the strict scrutiny test needed to guarantee the fundamental right to freedom.

    If society decides it has a compelling interest in subsidizing the healthcare of net-negatives, it should do so out the general tax base. But TAKING LIBERTY SERIOUSLY means that impingements on liberty, even if for compelling reasons, should be designed to minimize their impact. Government should not fund the subsidies to net-negatives by forcibly turning a minority of its citizens into Milk Cows.

    Note: The net negative subscribers to a health insurance program may or may not be “social net negatives,” as described in The Problem of “Net Negatives.” The two should not be confused. However, health-insurance net negatives who cannot afford the real cost of their own medical care are likely by definition to be social net negatives as well. Return