The Single Word That Could Make or Break Obamacare

There's a simple question that could determine the success of the health care mandate -- but no one's asking the candidates.


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.

First of all, it may be that the threat of moral judgment makes the command to buy health insurance sound more like a true mandate. Before the Court's decision, President Obama told ABC News that calling the mandate a penalty was purposeful, an attempt to communicate to people that they have a "responsibility" and that failing to live up to it would not be considered "fair." Massachusetts Governor Deval Patrick kept pushing the penalty framing even after the Court's decision because he felt that only the penalty language signaled an aggressive attempt to deal with problematic "freeloaders." Penalties suggest that you have to do something, and that failing to do it is wrong. Calling something a tax, on other hand, makes the matter appear more of a choice: buy health insurance or pay the government for failing to do so--we don't care.

It is precisely the type of moral judgment the penalty label brings that can be effective at getting people to do something we want them to do--even more than making them pay for not doing it. A study at several Israeli day care centers found that people were more likely to show up late for their kids after a lateness fine was instituted than when latecomers suffered only shame. It turns out that moral judgment was better at generating compliance than a fine.

On the flip side, tax labels are problematic because we dislike a government charge more when we slap a tax label on it. For example, calling a carbon offset program a carbon tax in one study led far fewer people inclined to pay the charge.

In the context of the health care mandate, this so-called tax aversion could lead more people to buy health insurance to avoid the disfavored tax. Given the negative feelings the tax label generates for associated programs, though, it is more likely that tax aversion weakens support for the mandate and lowers compliance--for either buying health insurance or making the alternative payment. But note that tax aversion may not cut equally across the board. In the study cited above, Democrats supported the carbon charge even with the tax label. So avoiding the tax label may be even more important for getting Republicans and Independents to pony up for health care.

Finally, the tax label might lead people to believe that others are not fully complying with the law, providing another reason to avoid purchasing health insurance. We know from research that our beliefs about whether others are complying with a law impact whether we will comply with it ourselves. If I see the car in front of me going over the legal speed limit, I am more inclined to go over the speed limit, too. And there are widespread beliefs among many Americans that people do not pay their fair share of taxes. The allegation by Senate Majority Leader Harry Reid (D-NV) that Republican presidential nominee Mitt Romney had paid no taxes would not have gained the traction in public opinion polls it did if Americans believed everyone paid their taxes. The perception that tax evasion is widespread is partly responsible for leaving the IRS hundreds of billions of dollars short of expected tax revenues every year.

If the mandate is framed as a tax, this could cut in several directions, all of which would reduce health insurance coverage. It could lead people to suspect that others are neither paying the tax nor purchasing health insurance, leading them to try this strategy themselves. Or, given that purchasing health insurance is several times more expensive than paying the tax (which, in 2014, will be only $95 or 1% of income), people might decide to pay the tax rather than purchase the more expensive health insurance. And this phenomenon can build on itself: once an impression of low compliance with the mandate is forged, fewer people will comply, further reinforcing the low compliance impression, and so on.

In either situation, the tax label could lead significantly fewer Americans to purchase health insurance than the penalty label would. The success of Obamacare depends crucially on people buying health insurance under the mandate rather than making a payments to the government. Because the law prevents insurers from denying insurance to those with preexisting conditions, this will lead to more sick and more costly folks entering the insurance pool. The only way to keep costs from skyrocketing or insurance companies from dropping out of the market, or both, is either to get more healthier, cheaper folks to join the insurance pool, or have them pay an equivalent dollar amount.

With the tax frame, though, individuals are less likely to buy health insurance. And the mandate as currently structured forces them to pay only a small amount for the failure to do so.

If the framing of the law matters for its success, then our attention should turn to the current framers-in-chief: the president of the United States and his presidential challenger. In the near term, the current presidential campaign will supply Americans with most of their information about this law. If Mitt Romney describes the mandate as a penalty, that will color how Americans view it when it takes effect. If President Obama defends his law as a tax to achieve universal health care, that term will gradually trickle into people's ears.

This is not even to mention the influence that the next president will have on these framing issues once he stops campaigning and takes office next January. President Obama in a second term could direct the IRS to take steps to ensure that Americans are aware of the obligations under the mandate; a President Romney in his first term could direct his cabinet to find tax offsets to compensate for the new mandate tax. These sorts of decisions by a sitting president will affect how the mandate is framed, and thus whether it works.

For some reason, though, the framing of the mandate has disappeared from our discussions about the campaign. The Sunday after the Court's health care decision at the end of June, Romney was pressed on the issue on the morning shows, and his responses made headline news. Now this issue appears nowhere.

That is why this debate season provided a golden but missed opportunity. These are the most watched presidential debates since Ronald Reagan took the stage for the first time as a presidential nominee in 1980. While the candidates took positions on Obama's defining legislation in the debates and on the campaign trail, they have avoided critical questions about health care, like whether the law is a tax or a penalty, for months.

Our presidential campaigns--and our presidential candidates--owe us more than that.