The Economic Case Against Obamacare's Constitutionality

It is rare for hundreds of distinguished economists to have their day at the Supreme Court, but then again, few laws have the reach of the Patient Protection and Affordable Care Act (PPACA). The Government has defended the law by making claims concerning the economic necessity for this unprecedented expansion of federal power. Yet the economists -- who include Nobel laureates and former senior government officials -- have made a powerful case that the economic basis supporting these justifications is flawed.

Individual Mandate

The Solicitor General will appear next week to explain why the PPACA is constitutional under the Commerce Clause. The federal government argues that the government must compel healthy people to purchase health insurance or otherwise they will push their health care costs on the public, to the tune of $43 billion. Yet this claim is simply not supported by economic reality.

As over 100 economists successfully argued before the 11th Circuit Court of Appeals, the voluntarily uninsured -- the young, healthy and not poor who choose to forgo coverage -- do not shift costs in our health care system. The lower Court rightly found that "the primary persons regulated by the individual mandate are not cost shifters but healthy individuals who forgo purchasing insurance."

According to the economists' analysis of Medical Expenditure Panel Survey (MEPS) data, only one-half of 1 percent of total health spending can be attributed to the targets of the individual mandate. The real purpose of the mandate is not to recover uncompensated costs, but to force younger, healthier individuals to subsidize the health insurance of others.

The government's stated rationale is to regulate "how health care consumption is financed," yet the MEPS data demonstrates that the government's aim is regulate the price of insurance, not health care. The PPACA seeks to compel the voluntarily uninsured to purchase health care at disadvantageous prices. Thus, the government's defense of the PPACA's constitutionality rest on an economic justification that is without merit, in theory or fact.

Medicaid Expansion

As Justice Kennedy observed nearly two decades ago, "Federalism was our Nation's own discovery. The Framers split the atom of sovereignty. It was the genius of their idea that our nation would have two political capacities, one state and one federal, each protected from incursion by the other." That admonition has pressing weight now, considering that PPACA's Medicaid expansion threatens this federal compact.

When courts give the green light, the federal government rarely declines to exercise power. Congress has broad discretion to offer inducements for the states to participate in a federal program like Medicaid, yet in South Dakota v. Dole, the Supreme Court emphasized that there must be limits to ensure that the states do not become instruments bound to play Congress's tune. In Dole, the Court upheld the federal conditions at issue because states that rejected them would stand to "lose [only] a relatively small percentage of certain federal highway funds."

Yet, under the PPACA, if the states choose to forego the law's compliance standards, they lose all federal Medicaid funding. This is hardly an inducement. In order to continue the program, the states would collectively be forced to add more than 22 percent to their budgets to replace the federal share, and six States would need a 50 percent hike in tax revenue. That is no choice at all.

The Hobson's choice of taking the PPACA's mandates or obliterating a state health care system is as coercive as can be. If there are any real limits to Congress's ability to coerce states under its spending power, then the Medicaid expansion must be unconstitutional.


Finally, if the Supreme Court strikes down the individual mandate, then the entire law must collapse under its own weight.

The purported goal of the "Affordable Care Act" was to make health care more affordable, but imposing the new regulations without any of the "benefits" runs contrary to congressional intent. If a portion of a law is unconstitutional, the Court must decide whether to strike down only that portion or more or all of the law so that the law still functions in a "manner consistent with the intent of Congress." Thus, if Congress would not have passed the remaining law without the unconstitutional portion, the Court should invalidate the entire law.

The PPACA imposes comprehensive regulations that precisely balance the benefits to health insurers against their costs. This is not simply because Congress favored the insurers. Congress also knew that the costs imposed on insurers would largely be passed on to consumers. The individual mandate was the most significant benefit in that balance. Without it and associated subsidies, the PPACA will impose $360 billion in net costs on health insurers over the next decade -- costs that will largely be passed on. The PPACA imposes on insurers dozens of significant taxes and regulations: minimum essential health benefits, uniform glossary of coverage, new rules for preventive services and taxes on so-called Cadillac plans.

Severing the individual mandate and allowing the remainder of this regulatory morass to continue in force would produce grave distortions, dramatically raise insurance premiums, fail to function in a "manner consistent with the intent of Congress."

In conclusion, the economic and legal constitutional arguments against PPACA are not distinct but complementary. The challengers have the economic evidence on their side, and if the Court accepts it, then Congress should go back to the drawing board to protect patients and provide affordable care within the boundaries set forth by the Constitution.

Steven A. Engel is a partner at Dechert LLP, which represents the American Action Forum and more than 200 economists as amici curiae before the Supreme Court.