The Affordable Care Act on Trial: Why the Individual Mandate is Important

David Szydloski March 28, 2012

Protesters demonstrate outside the Supreme Court as it considers the Affordable Care Act. (Photo by Mark Wilson/Getty Images)

This week, the Supreme Court held 6 hours of oral argu­ments to con­sid­er the con­sti­tu­tion­al­i­ty of the indi­vid­ual man­date, the key pro­vi­sion of the Patient Pro­tec­tion and Afford­able Care Act (ACA) that would impose a penal­ty on any­one who does not have a health insur­ance pol­i­cy that meets cer­tain min­i­mum require­ments set up by ACA.When the indi­vid­ual man­date was first pro­posed, many on the left argued against it, con­cerned that it was essen­tial­ly a sub­sidy to pri­vate insur­ance com­pa­nies at the expense of peo­ple who may not be able to afford indi­vid­ual cov­er­age even with the sub­si­dies and price con­trols set up by ACA. Although that con­cern is gen­uine, the indi­vid­ual man­date is the key to many of ACA’s bold­est reforms and can, in the long run, help bring down the costs of health insur­ance and health care for all Amer­i­cans. A brief his­to­ry of the indi­vid­ual man­date In a Feb­ru­ary 2011 inter­view with Erza Klein’s Wonkblog, econ­o­mist Mark Pauly, the inven­tor of the indi­vid­ual man­date and the man who first pre­sent­ed the idea to George H. W. Bush, explained that the man­date was an attempt at a straight-for­ward, mar­ket-based solu­tion to ris­ing health care costs that would hope­ful­ly pre­vent future gov­ern­ment reg­u­la­tion of the health insur­ance mar­ket. In his view, the man­date was not a “penal­ty for eco­nom­ic inac­tiv­i­ty” but “part of a broad­er sys­tem of reg­u­la­tions affect­ing a mar­ket for health care:”“We thought it was a good idea to do every­thing pos­si­ble to encour­age peo­ple to get insur­ance. Sub­si­dies will prob­a­bly pick up the great bulk of the pop­u­la­tion. But the point of the man­date was that there are a few Evil Knievals who won’t buy it and this would bring them into the sys­tem.”Con­gres­sion­al Democ­rats made sure to high­light the con­ser­v­a­tive bona fides of the indi­vid­ual man­date on Tues­day morn­ing, draw­ing atten­tion to promi­nent Repub­li­cans who had sup­port­ed it in the past. Sen­a­tor Charles Schumer, (D‑NY) – clear­ly think­ing about Novem­ber’s elec­tion – made sure to point out the sim­i­lar­i­ties between ACA and the health care reforms Mitt Rom­ney made while gov­er­nor of Mass­a­chu­setts, call­ing Rom­ney a “walk­ing, talk­ing ami­cus brief” for the indi­vid­ual mandate.
Why the indi­vid­ual man­date is impor­tant to ACA The imme­di­ate goal of the indi­vid­ual man­date is get more of the 40 mil­lion cur­rent­ly unin­sured Amer­i­cans into the health insur­ance sys­tem. If this is done, it can bring down health insur­ance and health care costs in three ways: More insured indi­vid­u­als means the costs for care are spread out over a larg­er risk pool, which can lead to low­er pre­mi­ums; Few­er unin­sured indi­vid­u­als means that pub­lic and pri­vate health­care facil­i­ties won’t have to absorb as much of the cost of treat­ing the unin­sured ($48 bil­lion dol­lars in 2008); and, Peo­ple with insur­ance are more like­ly to make use of pre­ven­ta­tive care (like annu­al phys­i­cals), which can address some prob­lems before they require expen­sive, last minute inter­ven­tions. Beyond these pos­si­bil­i­ties, the indi­vid­ual man­date pro­vides nec­es­sary sup­port for two oth­er reforms set forth by ACA: guar­an­teed issue and com­mu­ni­ty rat­ing. Under ACA, all new poli­cies issued after 2014 are guar­an­teed issue, mean­ing that insur­ance com­pa­nies have to sell those poli­cies to any­one who wish­es to buy them—regardless of pre­ex­ist­ing con­di­tions or past health care cov­er­age. An impli­ca­tion of this pol­i­cy, how­ev­er, is that indi­vid­u­als could the­o­ret­i­cal­ly wait till the last moment nec­es­sary to buy health insur­ance, reap­ing the ben­e­fits of hav­ing insur­ance while only pay­ing into it when it is con­ve­nient. Com­mu­ni­ty Rat­ing means that insur­ers “will be pro­hib­it­ed (…) from charg­ing dif­fer­en­tial pre­mi­ums based on health sta­tus” wher­ev­er they sell indi­vid­ual poli­cies. The short-term effect of this change will like­ly mean that pre­mi­ums for healthy indi­vid­u­als will go up and those for indi­vid­u­als with health prob­lems will come down.If these two pro­vi­sions are enact­ed by them­selves, they can desta­bi­lize the health insur­ance mar­ket by caus­ing a death spi­ral.” Sick indi­vid­u­als, many of whom can get indi­vid­ual insur­ance for the first time, will obtain poli­cies. This will cause the pre­mi­ums for healthy indi­vid­u­als to go up. The ris­ing prices along with the guar­an­teed issue pro­vi­sion encour­age healthy indi­vid­u­als to not pur­chase health insur­ance until they absolute­ly need it, mean­ing many will opt out, caus­ing pre­mi­ums to go up fur­ther. Insur­ance com­pa­nies, see­ing their risk pools dwin­dle because of the afore­men­tioned oppor­tunis­tic buy­ing of poli­cies, will go into debt and col­lapse.The indi­vid­ual man­date is sup­posed to coun­ter­act the death spi­ral by pro­vid­ing a strong incen­tive to those with­out insur­ance to buy and keep health insur­ance, lim­it­ing abuse of guar­an­teed issue and com­mu­ni­ty rat­ing.  Con­sid­er­ing the pos­si­bil­i­ty of the death spi­ral, it is clear why Jus­tice Scalia, dur­ing Wednes­day afternoon’s argu­ments on whether or not all of ACA should be thrown out if the indi­vid­ual man­date is found uncon­sti­tu­tion­al, called the indi­vid­ual man­date the heart of the act. Tues­day’s oral argu­ments The indi­vid­ual man­date was pri­mar­i­ly dis­cussed dur­ing Tues­day morn­ing’s oral argu­ments. U.S. Solic­i­tor Gen­er­al Don­ald Ver­ril­li argued on behalf of the Oba­ma Admin­is­tra­tion, Paul Clement argued on behalf of 26 states whose attor­ney gen­er­als filed com­plaints against ACA and Michael Carvin argued on behalf of the Nation­al Fed­er­a­tion of Inde­pen­dent Busi­ness. The Solic­i­tor Gen­er­al had one hour and Mr. Clement and Mr. Carvin had a half-hour each to present their case and answer the court’s ques­tions.Tues­day’s argu­ments cov­ered many dif­fer­ent aspects of the con­sti­tu­tion­al­i­ty of the indi­vid­ual man­date, some of which are quite tech­in­cal. Per­haps the biggest hur­dle that the Oba­ma Administration’s argu­ment has to over­come is whether ACA seeks to reg­u­late the lack of par­tic­i­pa­tion in a mar­ket (not buy­ing insur­ance) rather than mar­ket activ­i­ty itself. To answer this chal­lenge, it was impor­tant to clear­ly define the unique nature of the health care insur­ance mar­ket where lack of par­tic­i­pa­tion impos­es to costs on mar­ket par­tic­i­pants. In response to this unique nature” argu­ment, Jus­tices Scalia and Ali­to respond­ed with ver­sions of the same ques­tion: If the Supreme Court upholds ACA today, what is stop­ping Con­gress from jus­ti­fy­ing fur­ther mar­ket reforms that are beyond its enu­mer­at­ed pow­ers to make, by using the same “unique nature” argu­ment?” Jus­tice Scalia pushed the point fur­ther by offer­ing the exam­ple of the mar­ket for food. Like health insur­ance, every­one par­tic­i­pates in it in one way or anoth­er and no one can con­trol when they enter either mar­ket. Both mar­kets cer­tain­ly involve inter­state com­merce. Also, indi­vid­u­als who make health­i­er food choic­es are less like­ly to have cer­tain health prob­lems which can con­tribute to low­er health costs for every­one. So, along the lines the argu­ment the gov­ern­ment made, what is to pre­vent Con­gress from mak­ing a law that impos­es a penal­ty on any­one who doesn’t buy cer­tain healthy foods—like broc­coli? Mr. Ver­ril­li seemed to have a dif­fi­cult time clear­ly answer­ing Jus­tice Scali­a’s chal­lenge. (Ezra Klein offers some per­spec­tive on that here). So, it was up to Jus­tices Brey­er and Gins­burg to offer the fol­low­ing unique traits of the health insur­ance mar­ket:  Price-Shift­ing: The most impor­tant dif­fer­ence is that there is a direct causal con­nec­tion between an indi­vid­ual who does not choose to buy health­care who, when they make use of the health care sys­tem, pass­es the cost of their care to oth­er pri­vate indi­vid­u­als, com­pa­nies and the state and fed­er­al gov­ern­ment. As Jus­tice Gins­burg not­ed: “peo­ple who don’t par­tic­i­pate are mak­ing it much more expen­sive for the peo­ple who do.” The causal chain between not buy­ing cer­tain healthy foods and pass­ing the cost of future health prob­lems to oth­ers is ten­u­ous at best. Lack of equal­ly good avail­able alter­na­tives: The food mar­ket has many equal­ly good alter­na­tives to buy­ing cer­tain foods, while equal­ly good alter­na­tives for med­ical treat­ments do not exist for health care. Many indi­vid­u­als even opt out of the mar­ket of food all togeth­er by grow­ing, hunt­ing, and (in some cas­es) bar­ter­ing for equal­ly good, if not bet­ter, alter­na­tives than what they could buy in a store. What are the alter­na­tives of a woman who, after a home self-inspec­tion, dis­cov­ers that she has a lump in her breast? Are there any equal­ly good alter­na­tives to get­ting a mam­mo­gram and/​or a biop­sy to make sure she does not have a malig­nant tumor? Clear Nation­al Inter­est in Bring­ing Down Health Care Costs: Accord­ing to Con­gress’ find­ings on the effect of the indi­vid­ual man­date (42 U.S.C. §  18091) Nation­al health spend­ing is pro­ject­ed to increase from $2.5 tril­lion dol­lars or 17.6 per­cent of the econ­o­my, in 2009 to $4.7 tril­lion in 2019.” The growth of these costs affects our debt lev­el as well as the mon­ey avail­able for oth­er gov­ern­ment ser­vices, rein­vest­ment in infra­struc­ture and edu­ca­tion, even mil­i­tary spend­ing.What’s next? Its very like­ly that the fate of ACA will rest in the hands of the peren­ni­al Supreme Court swing vote, Jus­tice Antho­ny Kennedy. So far, it’s hard to tell what Jus­tice Kennedy will do, but from look­ing at his com­ments on Tues­day, it appears that he’s—in the very least—skeptical of the Oba­ma Administration’s argu­ment. As for those of us on the Left who are crit­i­cal of the indi­vid­ual man­date, there is space to be hope­ful that the indi­vid­ual man­date is found to be con­sti­tu­tion­al while con­tin­u­ing to work for more pro­gres­sive reforms in our country’s health care sys­tem. Yes, there is no doubt that the indi­vid­ual man­date is a con­ser­v­a­tive, mar­ket-cen­tered approach to health care reform. How­ev­er, if the Supreme Court rules that the indi­vid­ual man­date is con­sti­tu­tion­al, it can help bring down health care costs in the long term.
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