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.
This Post Has 17 Comments
This lengthy piece is very articulate, but it misses the reality of the dismal situation we now find ourselves in.
First, the government has no authority to force people to buy things. Such a concept is totally at odds with the limited grant of authority in the constitution. The Wickard case, a poor decision by the court, involved people who sell, not those being forced to buy. If the government has the power to force people to buy things, there is no stopping point. Elections are no salve for a government run amok. This is particularly so when both candidates support such abuses of power.
Second, this proposal is designed to ensure insurance companies keep reaping record profits. Their fundamental goal is to ensure profits by denying claims. People don’t want affordable health insurance, they want affordable health care. This is an elitist proposal by those in Washington who act more like kings than representatives of the people and the general welfare. They love to spend other people’s money, but never their own. Obama, Congress and every member of the Court receive “free” health care on the backs of taxpayers.
Third, lawyers are pikers compared to the medical-insurance complex. Each year our federal and state governments funnel over $500 billion in tax monies into a system paid for with taxes designed to serve the few at the expense of the many. Lawyers, on the other hand, receive a relative pittance for criminal cases and far less for civil cases. Should the government force people to retain lawyers? If not, why not? Aren’t lawyers important? The fact is, we are not important when it comes to budget time.
Fourth, we spend more on health care than any other country yet we rank very low in wellness statistics and have 50 million people who have no insurance. Why are so many other countries way ahead of us? It’s because our system is designed to enrich insurance companies and the health-care industrial complex and not to provide health care at reasonable prices. Ours is a reactive system, not a proactive system. It is the worst of all worlds. Perpetuating it is sheer folly.
In the end, this scheme deserves to die on the scrap heap of bad ideas. If it does not, it means our government can do anything it wants without limitation. Once government is allowed to force people to buy things there is no stopping point.
Mr. Fallone, thank you very much for this thoughtful well written explanation.
To Mr. Zales, does your State require car insurance? Does it require you to buy a license plate? Does it require a hunting license? Can you buy anything without paying sales tax? Government requires many things of its citizens. The difference here is that while I don’t have to drive or hunt I absolutely will need health care. If you are willing to say to people that they must buy insurance if they want care, but if they don’t buy it the hospital turns them away and they die on the street then fine, I’ll buy your argument. However I can’t think of anything more elitist than that.
It was very instructive to be in Prof. Feingold’s CLI: Senate class last year. His explanation of the process that gave us “Obamacare” was instructive and sobering; it is a mess. It could just as well be called “Scott Brown-care”; his election to the Senate led to much of the mess (though none of it was Scott Brown’s doing).
That said, there seem to be two confused issues here: is it constitutional and how does it address our health-system mess (which was the topic of the bulk of Mr. Zales’ comment). I’m pretty sure Obamacare is constitutional, though I’d not wager the Court will agree.
Obamacare’s contribution to fixing our healthcare mess is less certain or clear; at the very least it has broken a decades-old log-jam. If Obamacare is invalidated, we may find ourselves in the same deep hole we were before. If it is upheld then we might have a path clear to fixing the system; it will be hard to go back to the old ways.
Hamilton also held a broad view of the delegated powers; in many ways the current controversy parallels the Bank of the United States controversy. It will be interesting to see how this all shakes out.
The comments thus far bring to mind of one of my earlier posts, titled “Tea Party Economics,” that explored similar issues on the dividing line between political theory and economics:
Thanks for the posting, professor. Government regulation of business is one thing. Regulation of individuals – in forcing them to buy things – is quite another. Your eloquent comments from the tea Party post (below) are relevant. If this theory is accepted, then there is nothing a person can buy – or choose not to buy – that does not affect interstate commerce. That is going too far.
The fact that government is already over-encroaching on people’s rights is no reason to go further. What is happening is the gradual stripping of individual rights to the point where all that is left is a meaningless piece of paper. Corporations – artificial people – now have rights as do real people, with fewer responsibilities. So on the one hand artificial people have rights, while on the other hand government goes after individuals to support those artificial people. These factors combined, corporations as people and government invading individual economic rights, are a recipe for disaster. There is no stopping point. Whether viewed as economic or legal theory, my view is that this cannot be supported by the Constitution unless it is so twisted as to render its text and fundamental underpinnings meaningless.
What was once a grant of limited authority to create a government has become an all-encompassing leviathan with unlimited power to invade individual rights. If government can force people to buy things today, tomorrow it will tell people what to eat and the next day impose more rules. If there is one constant in history, it is that once a government assumes a power, it never gives it back.
Nick, regarding our individual rights: well, as far as I can tell the Bill of Rights is still enforced and the courts are still open for business. To whatever extent our rights are eroded/ing it is certainly not because of “Obamacare”. Nor is it a new problem. Mark Twain wrote that “No one’s life, liberty, or property is safe while the legislature is in session.” This was long before the New Deal. If we are going to fight to preserve our individual liberties, we should focus on those things that are actually a threat to them. Obamacare is not one of those.
Regarding the idea that Obamacare forces individuals to buy health care: that is just not true. Nature does that. Roughly speaking, everyone in America falls into one of two groups: those that have or will buy health care services, and those who never will. Those that never have or will consists of a tiny number of inordinately lucky people, a larger minority of persons who are chronically ill, and a group who will die young, and suddenly. The 28-year-old athlete that tees up a ball at the driving range, takes his stance, addresses the ball, and falls over dead. It happens.
Everyone else who lives long enough (into middle age, or has children) WILL buy healthcare services. This is not a government mandate, it’s Nature. What Obamacare seeks to do is to require you and everyone else to participate in this commerce (which you will anyway) in such a manner as to make it affordable for the greatest number of persons. This is a legitimate regulation of commerce, and serves an important State interest. This requirement is no more intrusive than a government mandate to breathe.
I acknowledge that the nature and behavior of our government has changed a great deal since the formative era in the very early 19th century. But that is in large part because the world itself has changed dramatically in that time too. When the Framers and their ancestors brought the common law to the New World, they changed it in several significant ways, because what was appropriate in 17th-century Britain didn’t work so well on the American frontier (you know: anything west of the Hudson). If the framers felt that time and circumstance could compel altering pre-existing legal systems, then we are entitled to do as they did, for the same compelling reasons.
A question for the very articulate posters on this issue. In the three day initial supreme court hearing, why was much of the discussion about the effect to the country if only the individual mandate portion is struck from the law? Isn’t is the court’s job only to determine constitutionality of the law, not to decide if the result of their findings is good or bad for the citizens?
I think that the Court discussed the effect of striking down only the individual mandate because it is trying to determine if the Act will still be functional without it.
In the rush to finish the Affordable Car Act, no severability clause was included; a severability clause is effectively a legislative declaration that the Act in question should be salvaged by the Courts if it finds part of it invalid. Courts do not always honor such clauses, but in a case like this where there is no severability clause, there are different rationales arguing to invalidate the entire act, or to just invalidate part of it.
It is uncertain whether invalidating the individual mandate would leave the rest of the Act reasonably functional. If the law is no longer able to work, the Court might invalidate the entire Act on the reasoning that leaving the malformed act in place will only cause confusion or worse.
Another line of thought is that, if it appears that the individual mandate was crucial to getting legislative agreement on the whole package, the Court could decide to invalidate the entire law on the ground that Congress did not intend to approve the remainder.
The purpose of the Court’s inquiry then is to determine whether, if the challenged individual mandate is struck down, the Court strike down the entire act. This is not about whether the Act is good or bad for the citizens, but whether the law would still be able to function without the individual mandate, or actually comport with Congress’s intentions.
We’ll have to see if others can provide a better explanation.
Professor Henry Paul Monaghan of Columbia Law School, a noted conservative legal scholar, makes many of the same points that I do in reaching the conclusion that the individual mandate portion of the ACA is constitutional:
Economist Alan Blinder of Princeton University makes similar arguments in favor of the individual mandate:
Interesting. Mr. Blinder believes that individual rights are forfeited when government decides they should be. His statement, “rights are nice but someone must pay the bills,” is a frightening statement, showing a complete misunderstanding of our Constitutional form of government. My rights are not for sale.
Make no mistake, when government asserts new rights it is stealing them from the people. Mr. Blinder is free to give up his rights but not mine.
“Individual rights are forfeited when government decides they should be.” Yes, indeed they are. That is exactly how I understand our Constitutional form of government. No individual right is absolute. The government can take any individual right. There simply must be no equal protection problem (which in this case there is not since the law applies equally to everyone, i.e., there is no suspect class being targeted).
Then there is the matter of what level of scrutiny applies, e.g. strict scrutiny if a fundamental right is involved, etc.
Use of the Commerce Clause throughout our country’s history has often resulted in the abrogation of individual rights for the greater good. That is not a “misunderstanding of our Constitutional form of government,” it is an understanding of history and precedent. For examples see Gibbons v. Ogden, Wickard v. Filburn, Heart of Atlanta Motel v. United States, and Gonzales v. Raich.
The government wants people to follow and believe in John Graham’s theory. Historically, it has stolen so many rights from the people that people have come to believe the government grants people rights. This theory turns the Constitution on its head.
I believe in something far different. In the beginning the people held all rights. That is the essence of our Constitution. Those people gave up a limited and enumerated set of rights and powers so a government could function. The government never had any rights in the first place other than what it was granted. It was supposed to be limited to what the people gave up. Over time, this concept has been turned on its head. The government now acts as if the people have no rights other than what it grants.
Simply because the government has been stealing rights and powers from the people for 200 years is no reason to believe that a government of unlimited powers theory is correct. It is a perversion of our Constitution. Taken to its logical conclusion, people have no rights at all except what the government grants them. That is not the Constitutional system created in 1787.
I do not know what specific right the government has stolen. Please provide an example of a specific right that has been “stolen” by the government. You write that “the government has been stealing rights and powers from the people for 200 years”. Please specify with particularity; what rights have been stolen?
Please reread my post. The “government” does not steal rights. You are correct: Each branch of government only has the powers granted to it under the Constitution. Individuals have rights, but they are not absolute. “Government” cannot steal individual rights, but those rights can be taken away, e.g. your freedom can be taken away if you are convicted of a crime; as can your “right” to own a gun under the same circumstances. HOWEVER, to do so, the “government” must act within the constraints of the Constitution. It cannot “steal” rights. Checks and balances within the Constitutional framework, as well as checks through the political process, ensure that. Pleas explain how “government” has stolen rights.
John, I am glad to reread your post. Every time the government expands its powers beyond what it was granted in the Constitution is a theft of individual rights. I point you to the Fourth Amendment. Under the guise of “interpreting” it, the courts have created dozens of “exceptions.”
Nothing in the text of the Constitution grants the courts such power to amend the Fourth Amendment either expressly or by implication. Now some might argue it is the court’s duty to “say what the law is” and thereby create these exceptions. I disagree. Moreover, the exceptions always favor the government; they never favor the people.
Among those that argue that “it is the court’s duty to ‘say what the law is’ ” are the Framers. That rule originates from John Marshall; appointed to the Court by John Adams. The comment was published when Jefferson was President; it refers to a case in which one of the parties was James Madison. So, you disagree with them? You disagree with the Framers? That’s OK; it’s unusual in this context, but go for it!
You also wrote that the Constitution does not “grant the courts … power to amend the Fourth Amendment either expressly or by implication.”. First, there is no such thing as an implied Amendment; all the courts have done is determine what the Fourth Amendment means. Second: you may object to the court’s determination, but you do realize (don’t you?) that your opinion is nothing more than your determination about that amendment. Why should anyone prefer your determination to the court’s? And to be complete, the Courts frequently rule against the government on Fourth Amendment challenges.
Your disagreement with the courts does not make their actions “theft”. Several times you have accused the government of such “thefts” but it is unclear exactly what right you think you’ve lost, even in the Fourth Amendment context.
The context of this thread is the ACA, which you object to. But as far as I can see, the only “right” the ACA takes away is your “right” to be unable to afford health care. This is a “right” I and most people would gladly forego.