Mitt Romney and his campaign have gone back and forth in recent days on whether the fees that would be paid under the “individual mandate” by those able to get health insurance but don’t, should be labeled a “tax” or a “penalty”.  As Governor of Massachusetts in 2006, when Romney signed into law a similar individual mandate that was central to the Massachusetts health care reforms, Romney insisted on calling the fee a penalty.  On July 2, a senior official in the Romney campaign said that the similar fee in the Obama health care plan also was a penalty.  But this then raised a fire-storm of criticism by many Republicans and others on the right, who had been arguing that with the June 28 Supreme Court decision that the fee was constitutional because it was within the authority of Congress to tax, Obama had signed into law in the health care plan a massive tax increase.  Mitt Romney then reversed course, and in an interview on July 4, said that it was a tax and not a penalty.

But the whole argument is absurd.  Whether one calls it in popular discourse a “tax” or a “penalty” is a matter of semantics.  More importantly, the fee (the neutral term I will use here) will only apply to those who are financially able to purchase health insurance, and choose not to.  This is necessary for private health insurers to be prohibited (as provided in the law) from denying coverage to individuals with pre-existing health conditions.  Without a mandate to purchase health insurance, someone could choose not to buy health insurance until they come down with some serious health condition (such as cancer or heart disease requiring an operation), and then enroll only then, on the day of their operation.  These would be free-riders, purchasing insurance only when they develop some health condition requiring expensive treatment.  It would be like insurance companies allowing people to buy fire insurance on their homes at the point when the homes are already on fire.

The fee (or tax or penalty) that would be charged would only apply to those able to buy health insurance, but then choose not to.  It would not apply, for example, to those whose lowest health care insurance option would cost over 8% of their income.  Nor would it apply to those with income below the income tax filing threshold, and there would be exemptions for religious reasons, for American Indians, for those without coverage for up to three months, and for financial hardship.  The fee that would be charged those who still choose not to purchase health insurance would then be 2.5% of household income (or $695 up to a maximum of three times this for a family, if greater).  Such a fee is low, and well less than the costs imposed on society of free-riders who believe it is better for them not to purchase health insurance until they have a major medical expense coming.

Ideally, the amount to be collected under this fee (or tax or penalty) would be zero, as everyone who can purchase health insurance, does so.  It is far from the “largest tax increase in the history of the world”, as Rush Limbaugh has labeled it (confusing the fee associated with failure to purchase health insurance when you can, with other provisions in the law).  And while there are probably some in the country who would like to be free-riders, I doubt there are many.  Personally, I know of no one who does not want to have health insurance coverage if they can get it.  The problem, rather, is the opposite, where individuals desperately want health insurance coverage, but are either denied it or are only offered expensive coverage that they cannot afford because of some medical condition.

The Obama health care reforms would make it possible for everyone to have access to affordable health care.  It is being done through private health insurance, as conservatives have long insisted.  But for this to work, without the private health insurance companies going bankrupt, the potential free-rider problem had to be resolved.  The fee that would be charged such free-riders is aimed at doing this.