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The mandate and fake tax relief together

September 24, 2010 - Mike Maneval

In Monday's post I made an assertion I want to explain further, describing the health reform act of 2010's consumer mandate, effective in 2014, and the use of tax credits to offset the impact on family budgets combined as "a recipe for predictable and large increases in premium costs."

The tax credits themselves seem shrouded in mystery, with Carla Johnson of the Associated Press reporting in March that undetailed tax credits would depend on income levels and Ricardo Alonso-Zaldivar, in a March 17 article from Huffington Post saying that, "for most households, those added costs would be more than offset by the tax credits provided under the bill."

One of the principal checks on consumer prices rising too rapidly or to levels too great is the elastic nature of demand: If potato farmers were to successfully collude to drive up potato prices, people would buy more bread instead.

But a mandate to purchase a good or service removes this check to the risk of price-gouging - and as some may note after my inartful analogy above, the demand for actual health care services tends to be less elastic than other consumer goods anyways.

And even as consumers are legally forced to purchase health insurance, the government has stepped forward through "tax relief," the itemized deductions of which reduce the taxpayer to dispensing what amounts to an industry subsidy themselves, to be the fall-guy. If the pace of the tax deduction doesn't, in the words of Alonso-Zaldivar, "more than offset" what the insurers choose to charge for policies, they can muddy the waters by misdirecting some of the public's attention toward increasing the industry subsidy masquerading as tax relief. 



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