This afternoon, I participated in a debate with Rick Esenberg at the Marquette University Law School. The debate was co-sponsored by the American Constitution Society and the Federalist Society. I was asked to defend the constitutionality of the individual mandate imposed by the Affordable Care Act. What follows are my prepared remarks.
Historians tell us that the connection between access to health insurance and employment was an accident. During World War II, wage and price controls prevented employers from increasing cash compensation for their workers. Employers wishing to recruit workers began to offer subsidized health insurance benefits as a way of avoiding this freeze on wages.
This is not a gift to workers from employers. We all pay for our health insurance with our labor. In return for our labor, we receive a combination of cash, employer provided benefits and non-cash prerequisites. The amount that employers pay towards our health insurance premiums is part of our income, which is why we are taxed on our employer-provided insurance above a certain level. The government encourages employers to offer health insurance benefits by allowing the employer to deduct these expenses as a business expense. About 60% of us receive health insurance through our employer.
The elderly and the disabled are not physically capable of working. Employer-based health insurance does not work for them. They receive their health insurance through Medicare. Participants pay certain deductibles and co-payments, but the bulk of the cost is imposed on the rest of us in the form of a payroll tax and the government then pays medical providers.
So our health insurance system has become tied to employment. As the costs of health care rise, it is increasingly difficult for middle and lower income Americans to afford health insurance unless they get it through an employer. This is because, as I mentioned, an employer will partially subsidize the cost of the premium as a component of total compensation. In addition, an employer can offer access to a plan that includes many other workers, thus broadening the risk pool and lowering the overall premium for each worker. An individual who seeks to purchase health insurance on their own gets neither of these two advantages. As health care costs continue to rise (an annual increase of about 8% in recent years), this cost differential becomes more significant.
However, one troublesome aspect of a health insurance system tied to employment is that we create a situation whereby persons who lose their job and persons who choose to leave their job may lose their health insurance. What happens to them?
If you are very poor, you may be eligible for Medicaid, which is the taxpayer funded health insurance for very low income people. But you really have to have very few assets to qualify, or otherwise meet some very strict eligibility requirements.
If you are not very poor, and you lose your job, you can purchase an individual plan from an insurance company. But these plans are very expensive, you have little or no bargaining power, and you really can’t get access to information about comparable prices that would allow you to comparison shop. One important component of the Affordable Care Act is the creation of Health Insurance Exchanges which will eventually allow consumers to have access to this kind of standardized information from multiple insurers.
Another possibility if you lose your job is that you will get a new job and receive health insurance through your new employer. But there is a catch. If you have a pre-existing medical condition, something that manifested itself while you were at your old job and was covered under your old plan, chances are that you will be denied participation in your new employer’s plan.
This is the flaw. The problem with a system of health insurance that is tied to employment is that it is not portable. You cannot carry your insurance with you from job to job. Instead, every change in employment creates the possibility of losing your insurance. People with chronic medical conditions end up staying with their crappy job, rather than pursuing new careers, because they are afraid they’ll lose coverage. Potential entrepreneurs don’t quit in order to work at business start-ups, because they can’t risk leaving their current employer. The lack of portability impedes labor movement and leads to a less productive work force.
One solution is to prohibit insurance companies from denying coverage on the basis of pre-existing conditions. Then losing your job would not mean potentially losing your insurance. Maybe we couldn’t carry the same plan to our new employer, but we could at least be guaranteed access to a roughly comparable plan if we switch jobs.
But this solution won’t work by itself. That is because once we ban exclusions based on pre-existing conditions, many healthy people will choose not to purchase health insurance. They will avoid paying any premiums so long as they are healthy. Then, once they get sick and need insurance, they will purchase a plan at that time. But after they become sick the costs of their care will be high, and they will not have paid into the system during their period of good health.
Economists call this an externality. That means that their decision to delay purchasing health insurance for a period of time has an impact on the rest of us who were not directly involved in their decision. This impact is that the premiums for everyone are higher because the pool of people covered are sicker and care is more expensive than it would otherwise be.
We already have externalities caused by uninsured persons receiving emergency room care for free, which increases all of our premiums. Some estimates put the average family’s increased premium due to uninsured medical care at $1,000 per year. If we ban the exclusion for pre-existing conditions, that cost shifting from the uninsured to the insured will increase significantly.
Mary Brown, who was one of the individual plaintiffs in the ACA case presently before the Supreme Court, had to drop out of the case last year. She owned a small business, and she sued because she did not want to have to purchase insurance under the individual mandate. But after the suit was filed, she got sick and her business went bankrupt. One reason she declared bankruptcy was to be able to discharge $4,500 in unpaid medical debts. As a result of her bankruptcy, she won’t have to pay the hospital that gave her medical care. But the hospital isn’t going to swallow that cost. Instead, the hospital will recoup the amount of money it spent on her uncompensated care by raising the cost it charges to the rest of us.
What if I decide not to purchase a Chevy Volt? Does my decision not to purchase a car raise the price that other people will pay? It does not. Fewer purchasers may prevent a manufacturer from benefitting from economies of scale, but this does not create externalities. The car manufacturer cannot shift the extra cost onto other consumers because, unlike the health care market, there is no way to quantify the dollar impact due to lost economies of scale as a result of the individual decision to forego a purchase. In addition, the prospect of foreign competition and the transparency of automobile prices combine to prevent auto makers from imposing higher production costs on purchasers.
What if I decide not to eat broccoli? Does my decision raise the price of broccoli for the rest of you? There is no externality here. Grocery stores throw away tons of unsold broccoli. The price of broccoli is a function of the weather and the cost of production. If fewer people buy broccoli, the price will actually go down because you have a greater supply of a good that has to be sold quickly. If I want to raise the price of broccoli for everyone, I should buy as much of it as I can.
The Affordable Care Act deals with real, quantifiable externalities in the health insurance market. It requires everyone to either purchase health insurance or else pay a penalty to the government by the year 2014. This is the individual mandate.
If you listened to the oral arguments in front the Supreme Court, and you thought that some of the questions being asked by the Justices displayed an inability to comprehend the basic functioning of health insurance in the United States, congratulations. I agree with you. It does make you wonder whether nine people educated in the law have the institutional competence to decide how the health insurance markets should be regulated. Judges are not the right people to make these kinds of decisions.
Congress is the institution best equipped to choose how to regulate. The members of Congress may not be intellectual heavyweights, but they represent a wide segment of the public and they receive input from a wide variety of sources before they make their decision. You may not like the plan envisioned by the Affordable Care Act, but at least Congress relied on economists and health care providers who understand basic economics.
You may think that the federal government has no business meddling in the health insurance market at all, and that we should instead allow market forces to dictate who gets coverage and at what price. My response to that is to quote Justice Holmes in Lochner v. New York: “[A] Constitution is not intended to embody a particular economic theory.” If the Constitution gives Congress the power to regulate under Article I, then Congress can regulate in whatever manner it sees fit so long as it does not contravene a provision elsewhere in the Constitution.
So let’s turn to the Commerce Clause.
Professor Randy Barnett at Georgetown University Law Center is the architect of the argument that the power to impose the individual mandate does not fall within the Commerce Clause on the grounds that inactivity cannot be considered “commerce.” I generally agree with much of what Professor Barnett writes, and I cited to him extensively in my last article, but in this case I disagree with him.
I am persuaded instead by Judge Lawrence Silberman, a highly respected jurist who wrote an opinion upholding the constitutionality of the Act in Susan Seven-Sky v. Holder in the D.C. Circuit.
Judge Silberman interpreted the scope of Congress’ Commerce Clause authority in a methodical fashion. First, he noted that no precedent of the Supreme Court has ever held or implied that Congress’ Commerce Clause authority is limited to individuals presently engaging in activity, as opposed to potential or likely activity.
Second, he looked at the text of the Commerce Clause. The word “regulate,” which is the power delegated to Congress by the Clause, means “to direct” or “to command.” Judge Silberman concludes that the plain text of the Commerce Clause allows Congress to require action.
Third, Judge Silberman recognizes that precedent establishes the outer limits of Congress’s authority here. He summarizes the limits set forth in the Lopez and Morrison cases as follows: 1) Congress may not regulate non-economic behavior based solely on an attenuated link to interstate commerce and 2) Congress may not regulate individual interstate economic behavior if its aggregate impact on interstate commerce is negligible. Neither of these two limits apply to the individual mandate, so Judge Silberman concludes that any holding that Congress lacks authority would be the creation of a new and additional limitation on congressional authority.
Judge Silberman recognizes that Wickard is the closest case to this situation, and that the opinion in Wickard supports Congress’ power here. The law upheld in Wickard forced farmers to enter the market and purchase wheat that they might otherwise prefer to grow themselves. Tellingly, Wickard rejected the use of formalistic labels such as “direct” or “indirect” effect as an unworkable basis for defining the scope of Congress’ power under the Commerce Clause. The use of labels such as “activity” and “inactivity” to define the scope of Congress’ power would be a return to the formalism rejected in Wickard.
Judge Silberman comes to the conclusion that since Congress can clearly regulate the activity of purchasing health insurance at the time you arrive at the emergency room, Congress can impose the mandate in reasonable anticipation of a virtually inevitable future transaction that will take place in interstate commerce.
Some of the Justice’s questions during oral argument suggested that they were not convinced that the health insurance market was “interstate” (commerce “among the states”), and that Congress lacked the power to regulate on that grounds. This cannot be correct. Health care services constitute 17% of the United States economy. Every day I am bombarded with advertisements from national drug manufacturers and hospitals with a national client base like the Cancer Treatment Centers of America.
The argument seems to be that the person who chooses not to buy health insurance is not doing anything that affects interstate commerce. That there is a national market out there, but that one individual’s decision to forego insurance is not connected to that national market.
Professor Geoffrey Stone from the University of Chicago Law School responds:
The problem [with this argument] . . . is that the decisions of individuals in the aggregate not to buy health insurance wind up having a dramatic effect on the cost of health care for everyone else and therefore have a substantial effect on interstate commerce. The healthy young Texan who chooses not to purchase health insurance raises the cost of insurance for the older Arkansan who does. And this is true millions of times over. It therefore makes perfect sense for Congress to attempt to deal with this problem by requiring people to have health insurance, just as states require people who own cars to have auto insurance.
Professor Stone’s response hits the nail on the head. The national market is impacted by the decision of some persons to forego purchasing insurance. Externalities are present in this situation, and costs are being shifted across state lines to those participating in the national market, as a direct result of decisions made by those who choose to remain outside of the market. Again, the Wickard case is the closest parallel.
In any event, a second response to the argument that the inactivity of individuals is unconnected to the national market is that, under the Necessary and Proper Clause, Congress can regulate decisions that fall outside of the market if reaching those decisions is necessary in order for Congress’ regulation of the national market to be effectively implemented. Justice Scalia said as much in his concurrence in Gonzales v. Raich, and the 2010 Comstock decision by the Court would also support this interpretation of the Necessary and Proper Clause.
Is the inclusion of the individual mandate in the law necessary in order for Congress to effectively regulate the national health insurance market? Of course it is. The whole debate among the Justices over the severability of this provision merely underscores how difficult it is to extract the individual mandate from the overall legislative scheme.
Even those challenging the law concede that Congress has the power under the Commerce Clause to impose a hefty penalty on the uninsured at the time that they show up at the emergency room and purchase insurance. The challengers also concede that Congress could impose a single payer system whereby it taxes the people directly and the government reimburses providers, thus putting insurance companies out of business. So the challengers recognize that the same overall result could be accomplished in other ways, but they assert that the Constitution forces Congress to choose one particular method of achieving this result over another.
However, once Congress acts under a delegated power, it is free to choose whatever method it wants to accomplish its end. “Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.” So said Justice John Marshall in McCulloch v. Maryland.
Where is the limiting principle?
As Professor Akhil Reed Amar of Yale University Law School points out, the limiting principle is the Constitution itself:
The most important limit, the one we fought the Revolutionary War for, is that the people doing this to you are the people you elect. That’s the main check. The broccoli argument is like something they said when we were debating the income tax: If they can tax me, they can tax me at 100 percent! And yes, they can. But they won’t. Because you could vote them out of office. They have the power to do all sorts of ridiculous things that they won’t do because you’d vote them out of office. If they can prevent me from growing pot, can they prevent me from buying broccoli? Perhaps, but why would they if they want to be reelected? So if you ask me what the limits are, I’d say read McCulloch vs. Maryland. And reread it. And keep reading it till you understand it. The Constitution is a practical document, it’s designed to work. And the powers are designed to be flexible in order to achieve the aims of the document.
Is Professor Amar’s reading of the Constitution consistent with original intent? Yes. Justice John Marshall understood that once interstate commerce was the subject, the Constitution delegated expansive power to Congress to choose the method to regulate that commerce. Remember that Justice Marshall began his political career as an influential delegate to the Virginia Ratifying Convention for the Constitution. Marshall’s view of the broad scope of this delegated power is our best evidence of original intent.
The individual mandate is constitutional.
Photo: List of potential Supreme Court nominees with handwritten notations by President Gerald Ford.