The Supreme Court and Health Care Reform

So, since health insurance is interstate commerce, and Congress has the power not only to regulate it, but also to make all laws that are "necessary and proper" for executing its power, why isn't that the end of it?
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Even close Supreme Court watchers are reluctant to predict what the justices will decide about the constitutionality of the Patient Protection and Affordable Care Act (PPACA). In this relative calm before the rhetoric inevitably escalates -- no matter what the decision is -- it might be useful to review the case.

First, no one disagrees that the health insurance market is interstate commerce. Article One, Section Eight of the Constitution says that "The Congress shall have Power... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes... " The final provision of that section gives Congress the power "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers... "

So, since health insurance is interstate commerce, and Congress has the power not only to regulate it, but also to make all laws that are "necessary and proper" for executing its power, why isn't that the end of it?

Some might say Congress could have achieved its goals using another approach and that, therefore, the specific provisions of this law are not "necessary." But a strong case can be made that choosing to rely heavily on reform of the private insurance sector was not only a reasonable approach but the necessary one because, given lessons learned from the long, dismal history of trying to enact reform, it had the best chance of actually passing.

The key provision being challenged is the "individual mandate" requiring nearly everyone to obtain health insurance. The main case for it was that it provided the best chance both to keep down prices and to allow private insurers to provide the intended coverage profitably enough to be willing to participate. Again, why is that not the end of it?

Yet, despite this argument, the Court might find a way to reject the individual mandate. This provision requires almost all Americans to buy insurance through either their employer or a health insurance exchange created by the states for those without access to affordable employer-based coverage. Opponents argue they shouldn't be forced to buy something they don't want even if they would benefit as individuals and a worthy public purpose would be served.

Justice Scalia suggested individuals might rationally decide not to buy insurance if, for example, they are young and healthy, have a low probability of needing expensive services, or have competing needs for their limited income. In fact, whether that is a rational decision is open to question. Since everyone faces a non-zero probability of needing medical care and the cost of the needed services can be expensive, a case can be made that the rational decision is always to find a way to buy insurance -- the least expensive method of paying for services. Further, if it turns out an individual needs care before he buys coverage, it is highly unlikely that an insurance company that knew about his impending need would sell him a policy. Instead, he would be forced to come up with cash to pay for it. If he broke his hip in a fall during his weekly basketball game, his bill could be $20,000 or more.

Justice Alito argued that requiring young, healthy people to pay more than their actuarial risk indicated would "force these people to provide a huge subsidy to the insurance companies" instead of simply paying an amount reflecting their own probable use of services. But that betrays a misunderstanding of insurance, which at its core involves subsidies: Healthy people pay more than the cost of the services they use so that the insurer will have enough to pay for the care of sicker people who use more services.

Justice Kennedy asked, "Can you create commerce in order to regulate it?" What Congress wants to regulate is the health insurance market, which already exists. Does requiring an individual to buy insurance constitute creating commerce? Maybe, but the essence of regulation is that some people will be required to do things they would not do otherwise. In this case, that activity is to buy health insurance. (On the other hand, having bought it, the individual cannot be forced to use it). A key point is that the health insurance market would be vastly different if young, healthy people refused to participate for the reasons Justice Scalia suggested. Premiums would be higher for all, and more would be unable to buy coverage. They either would not get needed services or would use hospital emergency departments so that the rest of us can pay most of their bill. By regulating the existing health insurance market, Congress intends to improve it so that it more nearly serves the public good.

Finally, if the Court still finds the mandate unconstitutional, must it reject the rest of the law? Given its purposes, the law is stronger with the mandate because its primary effects are to lower the cost of coverage (because the risk pool would be so large and diverse) and to increase the profits for participating insurance companies (because millions of new customers multiplied by even a small per-person profit would be huge). As a result, more individuals would benefit from coverage and providers would benefit from more stable funding.

If the individual mandate were declared unconstitutional, however, premiums would increase as would subsidies required to make them affordable to everyone. And some insurers would earn lower profits to the extent that higher premiums forced people to choose lower-priced plans or even to not buy coverage at all and pay the penalty. Some individuals would lose the benefits of regular care and the delivery system would continue to deteriorate. If, instead, the Court let the rest of the law stand, some firms might decide not to offer health plans, but others would pick up the slack -- presumably, increasing their profits because they would enroll more.

A fair reading of the PPACA is that it recognizes the societal benefit of universal coverage -- in addition to the benefit for individuals of having health insurance -- and includes provisions to make it possible for those who would have difficulty paying for it to obtain it. It also includes provisions designed to lower costs and improve the reliability of care, and thus enhance the value of the insurance.

How can a law that benefits individuals -- while recognizing and accommodating their differences -- and strengthens the health care system be unconstitutional? Indeed, Linda Greenhouse, the long-time New York Times Supreme Court reporter, characterized the opponents' arguments as, "There's just no there there." I find it hard to disagree.

Davidson, a professor at the Boston University School of Management, is author of "Still Broken: Understanding the U. S. Health Care System" [Stanford University Press, 2010].

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