Kevin McKechnie
Florida’s legislature, when asked to ratify the 16th amendment to the Constitution establishing a federal income tax, declined to even consider the issue. Virginia did consider the amendment, but rejected the very notion of income taxes in 1910 just a year after the amendment was proposed.

Neither state’s legislature thought the idea of income taxes was constitutional, thinking instead that it violated the protections afforded by the 4th amendment, namely the prohibition against seizure which provides security to every American with respect to “persons, houses, papers, and effects.”

Both states were part of the 26-state coalition that petitioned to have the Affordable Care Act – ObamaCare - overturned. Neither made this request based upon their historic objection to taxes (Florida, together with 8 other states, still does not have an individual income tax).

Instead, the objection to the individual mandate arose from an interpretation of the commerce clause holding that the government cannot compel individuals to buy insurance just so Congress can regulate it.

Chief Justice Roberts, and a majority of the Court concurred in this interpretation.

But, the Chief Justice then went on to say that the mandate, if considered a tax, is a constitutional use of Congress’ taxing authority. Which is to say that should the government decide to protect its investment in General Motors by requiring every American to buy a Volt, or be taxed a certain amount for failing to comply, there’s not much anyone can do about it.

To appreciate how large a problem this poses to the successful operation of ObamaCare, consider that the tax for failing to buy insurance is just a fraction of the cost of an annual policy. In other words, it makes significantly more financial sense to remain uninsured and either pay the tax penalty; or, purchase a policy only when you need it instead of when you don’t.

Such perverse incentives for non-compliance will cripple the dynamics of the Exchanges. Why participate in health insurance if the tax penalty for not doing so is so low?

In addition, the Supreme Court decision provided no relief from the two regulations most injurious to Health Savings Accounts (HSAs) and the qualifying health insurance plan integral to them. The Medical Loss Ratio (MLR) and the Actuarial Value (AV) regulations do violence to the insurance plans of the very people ObamaCare is supposed to help the most: individuals and small businesses.

The issue here is simple: traditionally constructed plans cost about $20,000 a year for a family of four. HSA-qualified plans cost much less on average, around $9,900. And, health costs are rising - compounding really, just like interest in a savings accounts but much higher – at more than 7% a last year.

Switching to HSA-qualified plans and taking some of the money saved in premium to fund your account means that dollar for dollar, HSA owners assume no greater risks than those insured at the 1st dollar like in traditional plans.

However, if you do that, the Department of Health and Human Services (HHS) won’t count most of the premium savings re-directed to your HSA in the MLR or AV calculations. What does that mean?

It means that HHS treats the same premium dollars differently depending upon which plan you buy. And, it provides insurers with incentives to offer more expensive, less efficient traditional plans instead of lower premium HSA-qualified plans.

Perhaps most disappointing of all is that HHS appears not to understand the difference.

For example, most of us consider changing the oil and topping up the windshield washer fluid part of the routine maintenance that comes with owning a car. It would never occur to us to pay an insurance company a premium for performing tasks you know you have to do anyway. But, that’s exactly what traditional health insurance plans do; charge a risk premium for things that are a certainty, not a risk, like doctor’s office visits.

Because the MLR and AV rules require insurers to pay out so many premium dollars in claims, insurers have no incentive to compel patients to switch their insurance plans. It’s far better to keep charging more in premium to cover the administrative charges associated with paying routine expenses than to let you do it yourself.

That’s why traditional plans cost so much.

That’s also why the switch to HSA-qualified plans is so far advanced in the self-insured employer market, the segment of the market the MLR and AV rules don’t touch – yet anyway. Real incentives in this market to both save and spend wisely mean fewer claims for an insurer to adjudicate and thus lower costs overall.

But, lower costs don’t appear to be the objective of the Affordable Care Act; nor can the administration and HHS claim to be interested in efficiency either.

I think that’s why Americans are so disappointed in the law, the President and the Supreme Court. The common sense nature of people has been ignored. If our goal was to insure more Americans less expensively, and to save the entitlement programs for future generations, then enacting a huge, expensive complex law is counterproductive.

More to the point, if the Supreme Court was the last opportunity to restrict government and to prevent the demise of liberty in something as individually important as our own health care, where do Americans turn for comfort now that Chief Justice Roberts and the other liberal Justices have ruled government mandates constitutional?

We can all be ordered to buy anything Congress deems important so long as they include a tax for non-compliance. Once the shock wear off, the only question will be: what’s next? If you find this disturbing, consider this:

T. Coleman Andrews served as IRS Commissioner for nearly 3 years during the early 1950s. Following his resignation, he said:

"Congress [in implementing the Sixteenth Amendment] went beyond merely enacting an income tax law and repealed Article IV of the Bill of Rights, by empowering the tax collector to do the very things from which that article says we were to be secure. It opened up our homes, our papers and our effects to the prying eyes of government agents and set the stage for searches of our books and vaults and for inquiries into our private affairs whenever the tax men might decide, even though there might not be any justification beyond mere cynical suspicion."

I sympathize with Commissioner Andrews. If he was upset then, imagine how terrified he would be now.


Kevin McKechnie

Kevin McKechnie is the Director of the HSA Council, a partnership of banks, health insurers and technology partners working to finance healthcare for more Americans by increasing the adoption velocity of Health Savings Accounts (HSAs) nationwide. The HSA Council is part of the American Bankers Association and is located in Washington DC.