The Affordable Care Act (Obamacare) requires me to have health insurance, or else pay a penalty.  The penalty is $95 or 1% of income (whichever is greater) in 2014, $325 or 2% of income in 2015, and $695 or 2.5% of income thereafter.

Is it ethical for me to pay the penalty, rather than buy insurance, if I think this will save me money?

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About John Hooker

T. Jerome Holleran Professor of Business Ethics and Social Responsibility Tepper School of Business Carnegie Mellon University

7 responses »

  1. John Hooker says:

    The first issue to resolve is whether failure to buy insurance is a violation of the law. It is normally unethical to break the law, even if you pay the penalty, except perhaps in cases of principled civil disobedience. You describe your motivation as saving money, not civil disobedience.

    The Affordable Care Act says the $95 is a “penalty,” not a fee or tax, which suggests that you pay it for breaking the law. However, legal commentators tell us that the Supreme Court ruled the Act constitutional partly on the ground that the penalty is really a “tax.” I’m going to take their word for it and assume that paying the penalty, rather than buying insurance, is a legitimate tax option and not a violation of law.

    Given this, the first thought that comes to mind is that “saving money” is not what insurance is all about. We always pay more in premiums than we expect to incur in losses, because the whole point of insurance is to protect us from the unexpected.

    You can respond that the situation is different for health insurance, because the unexpected is already “covered” whether you pay premiums or not. If you have a motorcycle accident, the doctors in the emergency room will treat you, for free if necessary. You have simply decided that additional coverage is not worth the cost.

    OK, but this makes you a free rider. Most people pull their weight by paying into the health system, but you want a free ride. You may pay taxes that support emergency care in public hospitals, but so do they, and they are also paying premiums (or their employers are paying premiums, which reduces their salary). This is a textbook violation of the generalization principle, because if everyone were a free rider like you, there would be no ride. In fact, the conservative Heritage Foundation originally proposed the idea of mandatory health insurance precisely to get rid of free riders. (In one of the strange twists of U.S. politics, conservatives now vehemently oppose the idea.)

    You can insist that you are not a free rider if you pay the penalty, because the purpose of the penalty is to make sure everyone bears the cost. However, if the penalty is less than your premiums would be, then by definition it does not cover your share of the cost (unless premiums are for some reason unjustifiably high in your area, in which case paying the penalty may be ethically OK).

    If you can’t afford health insurance, you might maintain that you should pay less for that reason. In other words, a policy in which poorer persons bear a smaller portion of health care costs is generalizable. Probably so, but Obamacare subsidies already implement such a policy. You want even more subsidy, enough to bring the premium down to the level of the penalty. You must show that this is generalizable. It must be rational for you to believe that we could have a workable health system in which everyone with your income contributes only an amount equal to the penalty, and someone else makes up the difference. You can rationally believe this only if you give us a reasonable account of where the money would come from.

    Until you do this, I conclude that paying only the penalty is not a generalizable action for you. Even if it is, your reason for doing so must be your low income, and not merely the fact that it saves you money. This means that you must be willing to buy the insurance if your income increases, even if you could save money by paying only the penalty.

    There is another factor. If you have insurance, you are more likely to take advantage of preventive and non-emergency care, which could make you healthier in the long run. This creates more utility, both for yourself and others. A failure to buy insurance therefore violates the utilitarian principle, unless the short-term cost to you personally is so burdensome that it outweighs these long-term benefits to all concerned.

    None of this is meant to be an endorsement of the Affordable Care Act, because similar arguments would apply if there were no such law. Nonetheless, I have seen a staggering amount of misinformation about what is actually in the law. See this for a concise and accurate summary of who is required to buy insurance.


    • Curious says:

      Are those who receive Taxpayer subsidies for mandated Insurance Premiums no less Free Riders than those who do not have Insurance and go the Emergency Room and receive care? (Granted, the law FORCES them to be Free Riders, and they do not do so of their own accord, but is this still no less of a “Free-Rider Problem”?) Is not the essence of the Free Rider problem that some are forced to pay for others? And is that not the case in both Uncompensated ER Care and Taxpayer Insurance Premium subsidies?


      • John Hooker says:

        People who receive subsidies are obviously free riders in the sense that they receive a wealth transfer from others, but we all agree on this. The interesting question is whether their free riding is unethical. I dealt with this in my analysis by applying the generalization test.

        I first argued that refusing to buy health insurance simply because it saves money, and because the system will pay for emergency treatment anyway, is not generalizable. If everyone acted on these reasons, there would be no way to fund the system that provides the emergency treatment.

        However, accepting a health subsidy because one has low income may be generalizable. The system could (and does) operate under a policy something like this. Yet as I emphasized, accepting a subsidy on these grounds is ethical only if one would be willing to pay full freight if one’s income were higher.

        None of this implies that Obamacare is the best or even an acceptable system. It says only that accepting its subsidies can be ethical if one can’t afford insurance otherwise. In fact, the law was designed to benefit the pharmaceutical industry as much as the public, which is no surprise, given the heavy lobbying by Pfizer and other companies. Now we see Pfizer moving its headquarters abroad (“inversion”) to avoid paying taxes to the government that boosts its revenue with taxpayer money. Not something that would fare too well under ethical scrutiny.


  2. I couldn’t refrain from commenting. Exceptionally well written!


  3. How goes it, great website you’ve got here.


  4. You should think about adding some instructional videos or sound recordings to emphasize your ideas better.

    This is an incredibly confusing post.


    • John Hooker says:

      You can find 6 instructional videos under How to Analyze above. Also the links in the post take you to explanatory material and videos. If you have specific questions about the post, I will try to explain. However, we have to recognize that ethical analysis is not always simple, because life is not always simple—particularly when it comes to national health policy.


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