Tag: Individual mandate

The Supreme Court on Moral Hazard

Apr 3, 2012• 49

By David Dranove

I have had to take some time off for the funeral of someone very near to me, so I have not had a chance to comment on the Supreme Court hearings. Nor do I have much time to do so now. But I would like to comment on Justice Alito’s line of questioning about burial insurance. His questioning was in response to one argument used to justify the purchase mandate, namely that sick individuals will receive medical care at someone else’s expense and therefore there is an economic justification for mandating the purchase of health insurance in order to prevent free riding. Alito noted that individuals who did not provide for their own burials will still be buried at taxpayer expense. This is another form of free riding. If the Supreme Court were to uphold mandatory purchase of health insurance, could Congress not also mandate purchase of burial insurance?

Solicitor General Donald Verrilli seemed surprised by Alito’s questions and did not provide a good answer. Yet these questions strike at the heart of the case and at deeper economic issues. There is a direct analogy between the market for burials and the market for healthcare. Just as some patients free ride off of the generosity of others, some deceased do the same thing. By extension, any time that a good is provided at a price below cost, whether by the government, a charity, or any other organization for that matter, we can expect a certain degree of moral hazard behavior. Some individuals who ought to purchase the good themselves will instead free ride on the generosity of others.

If the Supreme Court Rules Against the Obama Administration …

Apr 2, 2012• 38

By Maggie Mahar

If the Court throws out both the “individual mandate” (the rule requiring that virtually all Americans buy insurance, or pay a fine), and the provision that insurers must cover all applicants, and cannot charge higher premiums, even if a new customer has just been diagnosed with cancer? This might sound like the end of reform, but in fact, many of the most valuable reforms in the legislation would almost certainly still stand–including those that will change the way we pay for care, reducing costs, while lifting quality. Under the Affordable Care Act (ACA), hospitals will continue to find ways to reduce preventable errors–or face financial penaltie.. Doctors who succeed in managing chronic diseases, keeping their patients out of the hospital, will receive rewards. Medical students willing to practice in underserved areas “Where No One Else Will Go” will receive scholarships, and their ranks will grow. New funding will double the capacity of Community Health Centers that can provide medical homes for many who now receive their care in an ER. Reform will go forward.

There is, of course, the possibility that the court could declare the entire Affordable Care Act unconstitutional, but this seems extraordinarily unlikely. Too many planks in the law already are being implemented, and patients are benefiting. As Henry J. Aaron pointed out in an earlier post on this blog, overturning the law would be an “Rx for Chaos.”

Still, even if the judges “only” throw out the mandate and the requirement that insurers cover everyone, the results will be, as former Obama administration adviser Ezekiel Emanuel recently put it in a New York Times opinion piece “less than optimal.” (Unlike Rahm Emanuel, Zeke is known for understatement.)

Under this scenario, premiums for those who do buy insurance would climb because, without the mandate, insurers could no longer count on millions of new, healthy customers. Instead of “the 32 million Americans predicted to gain coverage under the health insurance reform act, only around 16 million Americans would gain coverage,” observes Emanuel.

What If the Supreme Court …

Apr 1, 2012• 54

By Maggie Mahar

Consider these two scenarios.

What if the Supreme Court:

1). Strikes down the requirement that everyone buy insurance, or pay a penalty (a.k.a. “the individual mandate”), but leaves in place the rule that insurers are required to insure everyone — including those who are suffering from a preexisting condition?

or 2). Throws out both the individual mandate and the provision which says that insurers cannot either deny coverage , or charge higher premiums, if someone is already sick?

Begin with the first scenario: you are not forced to buy insurance, but when you get sick, insurers will be forced to cover you, charging the same rates they charge healthy people in your community (a.k.a. “community rating”).

What would happen?

The Slippery Slope

Mar 30, 2012• 25

By Geoffrey R. Stone

There is no doubt that a state can constitutionally require citizens to have health insurance. Why, then, is the Supreme Court fussing over the constitutionality of the individual mandate provision of the Affordable Care Act?

The answer is simple. States have plenary authority to legislate on matters of public policy. The national government, however, is a government of limited powers. It cannot constitutionally act unless the Constitution authorizes it to do so. The central question in the case now pending before the Supreme Court is whether the Constitution grants Congress the authority to require individuals to have health insurance. Opponents of the law argue that it exceeds the legitimate authority of the national government.

The government defends the constitutionality of the individual mandate on the basis of the Commerce Clause of the Constitution, which provides in Article I, Section 8, that Congress shall have the power “to regulate Commerce … among the several States.”

Over time, the Supreme Court has held that under this provision Congress can constitutionally regulate activity if, in the aggregate, it has “a substantial economic effect on interstate commerce.” Moreover, as Justice Rehnquist explained in 1995, the Court’s role in determining the constitutionality of federal legislation under the Commerce Clause is limited to deciding whether Congress “had a rational basis … for concluding that a regulated activity sufficiently affected interstate commerce” to merit federal action.

Scrapping Obamacare Would Be an Rx for Chaos

Mar 29, 2012• 49

By Henry J. Aaron

Sharp questioning in oral arguments before the Supreme Court raised serious questions about whether the “individual mandate” — the requirement that people carry health insurance — will survive.

At issue is Obamacare’s central requirement that every American buy health insurance or pay a penalty. Critics say this is an unprecedented expansion of federal power — that if the government can force people to buy insurance, it can force them to buy anything.

Supporters, including me, say the mandate is just a logical extension of federal authority to regulate this market — a market that everyone eventually participates in at one time or another. We also know that if the mandate is struck down chaos is inescapable.

Under one scenario, the court would invalidate the requirement while leaving the law’s many other rules and regulations in place.

In that event, insurance companies would have to insure anyone who asked for coverage — but they would be barred from charging premiums equal to a best guess of what the new customers will cost.

Limiting how much insurers charge can work, but only if the mandate is in place — if everyone, the healthy as well as the sick, has to have insurance. It can’t work if people can go without insurance until they get sick and only then call up their friendly insurance broker and say “Cover me.”

So, Congress would have to do something. But what? One option would be to repeal the parts of the law that the Supreme Court left standing. Finding the votes to repeal the health reform is unlikely, as the next Congress is almost certain to be closely divided.

How Did the Challenge to the Affordable Care Act Ever Make it to the U.S. Supreme Court?

Mar 29, 2012• 77

By Maggie Mahar

In 2009, when someone asked Nancy Pelosi a question implying that health reform legislation might be unconstitutional, she replied: “Are you serious?”

Pelosi wasn’t alone. At the outset, many legal scholars considered the challenge to the Affordable Care Act (ACA) both “implausible” and “frivolous.”

But over the next two years, the notion that state courts might strike down the ACA took on a life of its own. Most people had only a hazy idea of what was actually in the legislation; nevertheless the idea of “health reform” inspired heated rhetoric. Soon, state attorneys general and governors responded to the political opportunities, banding together to make what Slate Senior Editor Dahlia Lithwick calls, “novel arguments in the form of what was always a constitutional Hail Mary pass … It’s no accident that until the lower district courts started striking down the act, none of the challengers really believed that they could succeed.”

Yet somehow, this week, the highest court in the land is hearing oral arguments in a case that even supporters viewed as a long shot. How did this happen?

The media played a major role, fanning political passions by quoting every challenge – including the absurd claim that the bill called for “death panels.” As Rachel Maddow observed Monday night: this case was “built up as the Super Bowl of American partisan politics.” Thus, the Supreme Court was left with little choice: it had to hear “The Case of the Century.”

If the Supreme Court Overturns the Individual Mandate

Mar 28, 2012• 37

By Robert Laszweski

First, trying to predict how the Court will rule is at best just speculation. I know what Justice Kennedy said both today and yesterday and it certainly doesn’t look good for the Obama administration and upholding at least the mandate.

But I will remind everyone, based upon oral arguments, most Court watchers expected a ruling in favor of the biotech industry on a recent case involving health care patents. “Surprisingly,” the Court ruled against the industry.

Whatever the justices are now thinking, there isn’t a lot anyone could do differently until we actually get a ruling and know exactly what gets thrown out, if anything, in the 2,800-page law.

But if the mandate is overthrown, then what?

First, exactly how the Court rules on severability will be critical. What could go out with the mandate?

The Obama administration has smartly tried to build a firewall around the rest of the Affordable Care Act (ACA) by arguing before the Court that only the insurance reform elements of the bill should fall if the mandate goes down—that the mandate is only the quid pro quo for the insurance industry in exchange for taking all comers. That looks to me like the most logical outcome of overturning the mandate—but my perspective is one of an insurance veteran not a Court expert.

That’s Not a Limiting Principle, Noah Feldman Edition

Mar 28, 2012• 2

By Michael F. Cannon

Harvard law professor Noah Feldman opines that U.S. Solicitor General Don Verrilli ”faltered” yesterday when Supreme Court justices asked whether the Obama administration’s claim that the Constitution empowers Congress to force people to purchase health insurance contains any limiting principle. Put differently, if the power “To regulate commerce…among the several States” allows the government to force you to buy health insurance, can the government also force you to buy broccoli?

Feldman laments that Verrilli’s “failure to offer a sharp distinction could be disastrous for the government’s case,” but assures us, “There is a good, sharp answer to this wholly reasonable question.” Here is the preface to Feldman’s answer:

[W]hen it comes to the strange and unusual case of health insurance, inaction causes the whole market to break down. By not buying health insurance, the healthiest person is depriving everyone of a public good. By sitting on their hands — and acting rationally — people who do not purchase insurance are unintentionally causing the market to fail.

One problem here is that if Congress can compel you to buy something whenever not buying it would deprive someone else of a public good, then Congress can also force you to purchase — not just tax and provide to you, but force you to purchase — tanks, fighter jets, and military bases; lighthouses; software; fireworks displays; e-books; comparative-effectiveness research (or really any type of research); a subscription to Consumer Reports; landscaping services; parks; rare and endangered species; street lights; et cetera ad nauseam. That isn’t much of a limiting principle.

Another problem is that economists use the term ”market failure” to describe a situation where one or more features of a free market cause that market to fall short of the efficiency-maximizing outcome. Feldman misuses it to mean, “This market isn’t doing what I want.” That is not market failure. Nor is it much of a limiting principle. If the Commerce Clause empowered Congress to force people to buy things to correct every perceived shortcoming in every market, Congress’ powers would be without limit. Even worse, Feldman doesn’t even bother identify whether the outcome he deplores is caused by some feature of a free market or government intervention (see below).

Justice Kennedy Swings Again

Mar 28, 2012• 4

By Michael Ricciardelli

More than a few prognosticators have posited a 5-4 split (either way) after reading the tea leaves of oral argument before the Supreme Court on the Individual Mandate yesterday. I don’t disagree. I won’t venture a guess, up or down, but I will say that it is likely, as usual, that Justice Kennedy (surprise, surprise) will be the swing vote. As such, you can find below three Justice Kennedy quotes that may be indicative of which way he’ll swing. (page numbers refer to the page number of the transcript, linked here.) And for those of you swallowed by sorrow at the prospect of the Individual Mandate going down in flames, pay particular attention to the last quote and Justice Kennedy’s consideration of “degrees” of uniqueness as a cabining principle. It is, I believe, as I heard a particularly astute health law professor say today, indicative that “Justice Kennedy is in play.”

JUSTICE KENNEDY–Could you help — help me with this. Assume for the moment — you may disagree. Assume for the moment that this is unprecedented, this is a step beyond what our cases have allowed, the affirmative duty to act to go into commerce. If that is so, do you not have a heavy burden of justification?

I understand that we must presume laws are constitutional, but, even so, when you are changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way, do you not have a heavy burden of justification to show authorization under the Constitution? (p.11-12)

Can’t We Do Better Than State-Sponsored Broccoli?

Mar 28, 2012

By Nathan Cortez

Legal arguments often rely on analogies. Indeed, during the first year of law school, students learn to analogize and distinguish cases. “This case is like this one, not that one.” Good lawyers can always conjure up and deploy a good analogy.

So why was it so hard yesterday for some of the most skilled lawyers and judges in the country to identify a good analogy for the individual mandate – the Affordable Care Act’s requirement that almost everyone buy minimum essential health insurance coverage or pay a penalty?

After listening to Tuesday’s historic two-hour oral argument and reading the transcripts, I counted roughly 17 different analogies to the insurance mandate – none of which seem particularly apt.

Here’s a brief rundown of the analogies invoked yesterday (by both the justices and the advocates), and then some thoughts on why they fall flat:

1. Is mandating health insurance like mandating that people buy cell phones to call 911? (Chief Justice Roberts).

2. Is the mandate like a requirement that we buy insurance to pay for our own burial services? (A macabre Justice Alito, who’s right: we’re all going to die).

3. Is the mandate like forcing us to buy broccoli? (Justice Scalia, invoking the dreaded broccoli analogy, which is apparently one of the parade of horribles that logically flows from the health insurance mandate, a canard that David Orentlicher has exposed).