Health Care, Broccoli, and the Common Good

Twenty years ago, I worked for the U.S. president who famously disliked eating broccoli. He made public his curious fondness for pork rinds instead. If his mother was unable to force him to eat broccoli, it is even less likely that U.S. Supreme Court Justice Antonin Scalia and his brethren could alter George H.W. Bush's eating habits. Some powers are just far too separate.

During the three-day Supreme Court hearings last month on the constitutionality of President Obama's "Patient Protection and Affordable Care Act," Justice Scalia argued that if the federal government, under the Constitution's Commerce Clause, could force an individual to purchase health care insurance, it could presumably force an individual to eat broccoli -- or at least buy it. Until Justice Scalia raised this point, I was convinced that the individual mandate was unconstitutional; now I am convinced that the Supreme Court should uphold it.

The Commerce Clause authorizes Congress to make laws that affect commerce "among the states." Historically the Commerce Clause has been a major constitutional provision for the Supreme Court in determining the relationship between individuals and the federal government. While delineating the scope of federal power has now become a partisan, ideological battleground in Washington, perhaps a little economic analysis can inform the debate.

Commerce, by definition, is about markets and our economy. Markets involve transactions by humans: buying, selling, taking and hedging risks; there are always winners and losers. Markets exist for health care insurance and for broccoli -- but they are not the same kinds of markets, and that is the fundamental difference which Justice Scalia overlooks.

Like all markets, the broccoli market involves buyers and sellers, but unlike the market for health care insurance, the broccoli exchange does not involve what economists call "adverse selection." Broccoli is reportedly a healthy vegetable, but one's decision to forego eating broccoli will have almost no impact on any other American. By contrast, the health care insurance market is rife with potential -- and actual -- adverse selection because all insurance markets inherently involve the pricing of risk.

The fundamental problem is simple: healthy people don't feel the need to purchase health care insurance, while insurance companies prefer to insure only healthy people. Such behavior guarantees a nonfunctioning risk pool.

Adverse selection occurs when a young, healthy 24-year-old elects not to purchase health insurance on the assumption that he will not need such insurance until he is much older. The next day, he could be hit by a bus while biking to work or be hit by a messenger on a bicycle while crossing an intersection. Our 24-year-old will receive the same treatment in a hospital emergency room as an employed individual who has purchased insurance and who faces similar injuries. There are two outcomes here for our uninsured patient: either the 24-year-old pays for the medical treatment, or the hospital absorbs the treatment costs, passing them on to other insured patients through higher charges, including, ultimately, higher premiums for those who do purchase health care insurance.

Adverse selection entails gaming an insurance risk pool by imposing an externality (the cost of the medical treatment you receive as an uninsured free rider) on somebody else. Insurance companies can also game the pool by selecting to insure only healthy individuals. There are no such externalities with respect to broccoli, and that is precisely why Justice Scalia's strawman argument is flawed. He posits that if the government can mandate that an individual buy health care insurance, it can therefore force you to eat broccoli simply because it is good for you. It cannot do that: eating or not eating broccoli is a purely self-contained decision that does not affect anyone else's life or health, let alone the nation's commerce.

Our society could say, of course: no insurance, no treatment, and force voluntarily uninsured individuals to live with the consequences of their decision to forgo insurance. But our sense of humanity, decency, and social justice seem to push Americans away from enforcing that outcome.

The individual mandate is designed to address this problem of ensuring that there is a workable risk pool in which adverse selection is eliminated wherever possible. The Congress, in establishing this approach, has legislated on behalf of the broader common good of the American public and made the legislative decision that a well-functioning risk pool for health care insurance is essential to the nation's well-being.

States now mandate automobile insurance, and such a requirement is considered uncontroversial because individuals elect voluntarily to drive vehicles on public roads. Critics of the health care mandate contend that a health insurance mandate is altogether different from car insurance because one does not elect to be born: one cannot readily opt out of existence, whereas driving a car is optional.

This argument, however, mirrors the point made above when it comes to adverse selection and the common good. An individual's decision not to purchase health insurance necessarily affects the health insurance risk pool for all Americans. That individual effectively becomes a free rider in a system which, if he does become sick, will provide him with care at the expense of others. It is, therefore, entirely within the scope of the Commerce Clause to enact legislation that addresses the significant and harmful impact of "free riders" on a system that exists to further a broader, common goal that benefits all Americans.

Eating broccoli is supposedly a healthy choice for individual Americans, but eating or not eating broccoli -- like flossing or not flossing one's teeth -- does not entail adverse selection, free riders, or economic harm. The duty of our Congress is to legislate for the nation's common good. The health insurance mandate does precisely that, and it should be upheld as appropriate legislative action under the Commerce Clause.
Charles Kolb is the President of the Committee for Economic Development in Washington, D.C. He served in the first Bush White House from 1990-1992 as Deputy Assistant to the President for Domestic Policy. The views in this article are solely the author's.