The Affordable Care Act Upheld - A Loss for Society

A Conservative Victory.

In what was widely perceived as a victory for progressive social legislation, the Affordable Care Act (ACA) has been upheld by the Supreme Court as constitutional.  Yet, conservative thinkers such as George Will (a “substantial victory” for conservatives) and Charles Krauthammer (“draws the line against the … expansion of congressional power”) are extremely happy with the embedded rationale in the decision that upheld ACA because, they argue, it limits the scope, reach and activity of the federal governement; and they commend and defend the thinking of Justice Roberts in this matter.  So, when joining the “liberal” wing of the court, how does Justice Roberts’ interpretation actually limit federal law to the delight of conservatives with a brain? (Not Rush Limbaugh, for example).

In the concurring opinion, Justice Ginsburg facetiously questions the way Justice Roberts upholds the ACA, as Roberts writes more about his reason not to uphold the statute than about his reason to uphold it.  Justice Roberts dedicates the better part of thirty pages primarily on the improper use of the Commerce Clause,  in support of his view that Congress over regulates commerce.  He uses eight pages to uphold the ACA statute on the basis of Congress’ power to tax.  Justice Roberts has clearly used his ruling on the ACA to weaken the use by Congress of the constitutional power that enables it to regulate commerce “among the several States”.  Justice Ginsburg’s concern of Justice Roberts exposition is understated:  “I see no reason to undertake a Commerce Clause analysis that is not outcome determinative.”  That is, of course, unless you want to set precedents for further rulings.[1]

The Commerce Clause in Question – What Does it Mean?

Justice Roberts strikes down the notion that the Commerce Clause empowers Congress to enact the “Individual Mandate” arguing Congress invokes the clause to regulate an activity that does not in fact exist.  This activity, he states, only exists by its creation within the ACA and as such, in the view of the court, it is a convoluted argument by Congress, that which creates an activity first to then regulate it under the Commerce Clause.  Furthermore Justice Roberts, by framing and upholding the Individual Mandate as allowable under Congress’ Tax powers, is telling the country that to overturn ACA they need to go through Congress—electing representatives that will change the law.  He clearly states that it is not the role of the Supreme Court to overturn a law that is constitutionally sound.  He writes: “The Court does not express any opinion on the wisdom of the Affordable Care Act.  Under the Constitution, that judgment is reserved to the people.”

The overall dissent opinion, led by Justice Scalia and joined by Justices Kennedy, Alito and Thomas, agrees that the individual mandate is not valid, alleging once again that it forces someone not engaged in an activity to do so.  This, argued appropriately, would be an overreach by the federal government into the private life of its citizens.  But in fact, the argument is not correct in its foundation and the majority of the majority opinion (Justices Ginsburg, Breyer, Sotomayor, and Kagan) do in fact argue for the application of the Commerce Clause under this instance. 

The issue at stake here is the legislation and regulation of public goods, goods that affect each individual as a member of a society.   By striking down the Commerce Clause rationale behind the individual mandate the court sets precedent that erodes the thinking that has allowed for such things as environmental protections, public education, infrastructure, even police and armies, not to mention Social Security and Medicaid itself. 

So, while the ACA as such is upheld, this ruling is in fact a setback for those of us who think that the essence of government’s role in society is the regulation and management of public goods.  For those of us who think that by participating in a society, its members engage in the activity benefited by the public goods of that society.  And that it is more efficient and productive when you don’t have competing highway systems and duplicate bridges, multiple military and law enforcement authorities, an ignorant labor pool and an unhealthy society. 

Striking Down the Individual Mandate as Based on the Commerce Clause.

What is the “individual mandate”?  The decision as written by Justice Roberts defines it (some editing for length) as follows:

“The individual mandate requires most Americans to maintain “minimum essential” health insurance coverage. The mandate does not apply to some individuals, (religious objectors, prisoners, undocumented aliens, Indian tribes, and low income persons) but, for individuals who are not exempt and do not receive health insurance through a third party (their employer, Medicaid or Medicare), the means of satisfying the requirement is to purchase insurance from a private company.  Beginning in 2014, those who do not comply with the mandate must make a “[s]hared responsibility payment” to the Federal Government.  That payment, which the Act describes as a “penalty,” is calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the aver­age annual premium the individual would have to pay for qualifying private health insurance.  The Act provides that the penalty will be paid to the Internal Revenue Service with an individual’s taxes, and “shall be assessed and collected in the same manner as tax penalties, such as the penalty for claiming too large an income tax refund.”

In writing this, Justice Roberts foreshadows his argument that Congress is creating a tax from which anyone with coverage or exempted from coverage by the ACA statute is exempted.  The argument is: if you are not insured you owe IRS penalties collected trough your tax returns.  Thus, because the penalties are collected through the IRS and calculated on the basis of income, marital status and dependency, these penalties are not in fact penalties but taxes, which you would not pay if you were insured.  It is the "Quacks like a Duck" test.

The core of the issue, and the reason for the individual mandate is the current, existing now, situation of cost shifting, which increased annual premiums an average of $1,000 annually in 2010, by Congress’ estimates (approximately 8%).  Cost shifting is what occurs when individuals with no insurance need urgent care and cannot afford it.  Because by law these individuals cannot be denied care, their price tag gets shifted to those with insurance.   As Justices Roberts and Scalia point out, the ACA exacerbates the problem when it requires insurers to not deny coverage for pre-existing conditions and not to charge different, higher, premiums to people who get sick. [2]   Without the mandate the logical economic incentive is not to buy insurance until you get sick. 

In the dissenting opinion to the majority, Justice Scalia writes, concurring with Roberts, that failure to participate in commerce cannot be penalized. [3]  But, as explained, health care does not fall under the traditional rules of commerce as an isolated transaction between two parties.  To view the health care market from that point of view is extremely narrow.  If failure to participate in public goods were a reasonable test of exclusion in a government sponsored initiative, program or guarantee, then it would follow that, for example, childless individuals should not pay taxes towards schools, or people who chose to not drive on highways should not pay gas taxes, or people who live in safe gated neighborhoods should not pay municipal taxes to support local police. 

The Individual Mandate is different than the government requiring the purchase and consumption of broccoli—to use the sardonic reference (“broccoli horrible”).   When an individual does not buy broccoli, it does not affect negatively another individual’s purchase and consumption of broccoli.  Quite the contrary, if demand goes down for a discretionary product, its price will go down.   When a person decides not to buy insurance, however, it does affect negatively all insurance buyers because, as Justice Ginsburg says (edited for length):

The health-care market’s size is not its only distinctive feature. Unlike the market for almost any other product or service, the market for medical care is one in which all individuals inevitably participate. Virtually every person residing in the United States, sooner or later, will visit a doctor or other health-care professional. (Over 99.5% of adults above 65 have visited a health-care professional.). Most people will do so repeatedly. (In 2009 alone, 64% of adults made two or more visits to a doctor’s office.).

You cannot say the same about eating broccoli (or brussel sprouts).  Justice Scalia’s contentious (and almost ranting) ironic argument segue that failure to buy a car can be called “partici­pation in the non-private-car transportation market” if the Commerce Clause argument were upheld misses the larger point and is a wrong example.  It is a broad transportation market, one which includes cars, buses, pedestrians, bicycles, etc.  If one chooses to walk instead of taking the bus, you are still transporting yourself from one place to another, and as long as your choice does not affect me negatively, I don’t care how you got there.  Likewise, the health care market as regulated under the ACA is not about buying an aspirin or not.  But if some person has a psychotic breakdown and shoots down twenty two people, and that person under a reasonable system could have been diagnosed and treated preventatively, yes, it is part of the intrinsic act of living in society to figure out rules to avoid such societal breakdowns.

Failure to understand health care as a public good leads to this narrow interpretation of the commerce clause.   Congress is not directing the creation of commerce by forcing people to participate in the health insurance market.  As Justice Ginsburg wrote, 99.5% of people participate in the market already.  And, it can be reasonably argued, that those who do not purchase insurance from an established, institutional provider are in effect self-insured, i.e., they are estimating the risks involved given their lifestyle, behavior and health history, and paying themselves a “premium” for coverage that they calculate as fair: zero.  Just because their actuarial math is flawed it does not mean society should subsidize them. 

In citing Hamilton (Federalist 33), Justice Scalia conveniently glosses over the purpose of the paper: Congress has the authority to impose a uniform law to all states and individuals living in the United States and that “if individuals enter into a state of society, the laws of that society must be the supreme regulator of their conduct.”  It is clear from Hamilton’s argument that society precedes laws, and that laws are passed by the members of society to regulate the conduct of its members as a whole entity.  It is clear that, for Hamilton, society is not a simple aggregation of individuals but a unit in and of itself.  So, by being in a “state of society” an individual’s responsibility towards society is created; by virtue of participating in society the individual partakes in the public goods that society creates; and that society has a right to regulate conduct as it relates to the goods of its own creation.  Thus the argument that “(Congress) has never before used the Com­merce Clause to compel entry into commerce” is incorrect, not because any act that Congress may or may not have done so in any express manner, but because in fact even through omission, and because health care is defined as a public good, every member of society engages, participates and affects the health care market.

Justice Roberts’ well argued point about regulating future possible activities also fall under this category of rhetorical distortion.  He dismisses the self-insured argument out of hand, yet recognizes that “almost all who are uninsured will, at some unknown point in the future, engage in a health care transaction.”  His argument originates from severing the insurance market from the health care market, distinguishing them as separate activities.  However it is not “metaphysical philosophy”, as he characterizes economic thought, to bundle (“inherently integrate” in his words) the insurance market with the health care provider market, because the first would not exist without the latter.  If no health care were ever needed (in either an immediate or distant future), the insurance industry would not exist.   So the act of deciding not to buy insurance is an actuarial decision by the individual and as such this individual is participating in the economic activity intended to be regulated by the ACA under the Commerce Clause.  It is not a “proposition that Congress may dictate the conduct of an individual today because of prophesied future activity”.  It is a present and real activity.

The Dissent on the Commerce Clause – A Hint for Single Payer?

Justice Ginsburg and Justices Sotomayor, Breyer and Kagan, uphold the Commerce Clause argument.  Justice Ginsburg in her writing makes strong arguments as to the unique nature of the health care market.  On comparing vegetable or automobile markets, for example:

“The analogy is inapt. The inevitable yet unpredictable need for medical care and the guarantee that emergency care will be provided when required are conditions nonexistent in other markets. That is so of the market for cars, and of the market for broccoli as well. Although an individual might buy a car or a crown of broccoli one day, there is no certainty she will ever do so. And if she eventually wants a car or has a craving for broccoli, she will be obliged to pay at the counter before receiving the vehicle or nourishment. She will get no free ride or food, at the expense of another consumer forced to pay an inflated price.”

On insurance being an optional purchase with variable demand she states the obvious: “If unwanted today, medical service secured by insurance may be desperately needed tomorrow.”  She also counter argues Justice Roberts’ assertion of distant future need, as the nature of a health need is absolutely unpredictable.  Furthermore, she writes:

“Health insurance is a means of paying for this care, nothing more. In requiring individuals to obtain insurance, Congress is therefore not mandating the purchase of a discrete, unwanted product.  Rather, Congress is merely defining the terms on which individuals pay for an interstate good they consume: Persons subject to the mandate must now pay for medical care in advance (instead of at the point of service) and through insurance (instead of out of pocket). Establishing payment terms for goods in or affecting interstate commerce is quintessential economic regulation well within Congress’ domain.

Clearly, this is the “bundling” of insurance and health providers that Justice Roberts was arguing against.  But Justice Ginsburg does seem to misstate somewhat (perhaps intentionally) the case when she equates insurance to paying in advance.  By its own nature, insurance payments should exceed the expected financial needs of a covered incident.  Perhaps not on an individual basis, but certainly in the aggregate this has to be the case.  Otherwise the insurance industry would not exist.   In the case of home insurance, for example, a total loss is more than the sum of all monthly payments made by an individual homeowner.  But as the insurance company has many other properties covered that never incur in such a loss, there is a profit to be made.  So each individual insurance holder is not in fact “paying in advance” for a future need.  They participate in a risk pool, in full knowledge that they may pay more than they will ever need.

So how do health insurance companies make a profit if all they are receiving is advance payments for a future need that will probably exceed anyway the sum of all previous payments?  The answer is simple: cost shifting.  The highest percentage of health care needs occur at end of life.  The ACA does deal with this partially by ending the practice of lifetime limits to coverage—a practice by the insurance industry that led to many a personal bankruptcy.   But the greatest proportion of cost shifting is covered by the government through Medicare, taking care of adults when their needs for health care increase. 

The health insurance companies could not survive if they were forced to maintain coverage of the population pool that currently enjoys Medicare.   The insurance companies will be extremely profitable with ACA, enlarging the pool risk to include healthy younger individuals, yet maintaining “expensive” older individuals out of their pool.  In essence, they shift the cost of the more expensive care over to the taxpayers with a program that conservatives always rant about having spiraling out of control upward costs.  That is why, upon upholding as constitutional the ACA, health care stocks shot up; and that is why health insurance companies will fight tooth and nail against the raising of age eligibility for Medicare.

If there is a solution to this conundrum to the taxpayer, Justice Ginsburg hints at it with her phrasing, suggesting that insurance is a form of prepay to an eventual need.  This is the basis of an argument for single payer/private service.  A true way to control health care costs.

-------------------

 Links of interest:

The SCOTUS decision

A quick overview of the ACA

---

    [1] In an interesting and also seemingly out of the blue comment, Justice Roberts writes “The Consti­tution may restrict state governments—as it does, for example, by forbidding them to deny any person the equal protection of the laws.”  This could indicate his thinking on a future decision that may rile conservatives even more than the one on ACA: the constitutionality of Gay Marriage.

[2] From the decision: "The community-rating provision requires insurers to calculate an individual’s insurance premium based on only four factors: (i) whether the individual’s plan covers just the individual or his family also, (ii) the “rating area” in which the individual lives, (iii) the individual’s age, and (iv) whether the individual uses tobacco."

[3] This is also the basis of the dissent - that the payment is a penalty, not a tax.