A Reality Check on the Individual Mandate's Day in the Supreme Court

If you watched or read "mainstream" media coverage of the Supreme Court's hearing yesterday on the Affordable Care Act's individual responsibility provision, you know that "the mandate" is in "big trouble." NBC's Justice Correspondent Pete Williams said he doesn't see five votes for the law to survive. CNN's Jeffrey Toobin had a positive meltdown. Huffpo's article on the administration's response to the media freakout started with Sam Stein's own special freakout.

Was any of that even remotely justified? Not if you didn't go into yesterday's hearing looking for an excuse to find high drama at high noon. I listened to the entire two-hour session of he Court, and the case for the individual mandate was far stronger inside the courtroom than you heard from the media firebreathers. Here is what the entire media circus is missing: the actual questions before the court. The actual questions, addressing the mandate, are two-fold: (a) whether Congress has the authority to compel individuals, with some exceptions, to purchase health insurance as the primary means to pay for health care, which everyone will use to an unknown cost at some point and (b) how Congress was enforcing this requirement. There is, after all, no actual mandate if Congress says you must do something but there is no consequence of not doing it.

I will explain the second part first, because of its relative clarity. The penalty for those who can afford but choose not to buy insurance, the Administration argued, arose from Congress' power to tax. Although it wasn't termed a tax, Solicitor General Verrilli said, that it is in the Internal Revenue Code, collected by the IRS and on your tax return, compel the court to accept that the power to levy that penalty indeed comes from Congress' power to tax, or that it at least could, and if it could, the Court must defer to Congress. What was significant was that there was no substantial rebuttal of this point by the opponents of the law. What's more, the attorney for Florida, Paul Clement and the attorney for National Federation of Independent Business, Michael Carvin, outright admitted that Congress has the power to levy tax penalties for not having health insurance.

The only dispute they raised is - as Justice Kagan pointed out - about the timing of when Congress can mandate the purchase of insurance coverage. The attorneys against the law conceded that Congress had the power to make anyone buy insurance, but only at the point of sale. Meaning that they argued that if you show up in the emergency room without a means to pay for your care, Congress could then mandate that you purchase insurance, and that Congress could even make you pay a fine, under its taxing power.

It would seem to a logical observer that once the opponents concede that Congress indeed has the authority to fine people for not having insurance and force the purchase of insurance, the timing is more of a policy question than a question of Constitutionality. You know, strict constructionist and all.

Not so, argued the opponents, on a rather shaky basis.
JUSTICE KAGAN: Well, Mr. Clement, now it seems as though you're just talking about a matter of timing; that Congress can regulate the transaction, and the question is when does it make best sense to regulate that transaction?

And Congress surely has within its authority to decide, rather than at the point of sale, given an insurance-based mechanism, it makes sense to regulate it earlier. It's just a matter of timing.

MR. CLEMENT: Well, Justice Kagan, we don't think it's a matter of timing alone, and we think it has very substantive effects. Because if Congress tried to regulate at the point of sale, the one group that it wouldn't capture at all are the people who don't want to purchase health insurance and also have no plans of using health care services in the near term. And Congress very much wanted to capture those people. I mean, those people are essentially the golden geese that pay for the entire lowering of the premium.
Read the bolded part in Mr. Clement's response again. This is the gist of their argument: that Congress cannot force activity in the insurance market, and cannot penalize people for what they call inactivity.

But in turn, this was also the part of the Administration's argument that was one of their strongest suits: that the decision on the part of many who can afford it not to purchase health care has a direct effect on those who do buy insurance, by raising their premiums by about $1,000 a year. Because everyone will at some point use health care, and the cost of uncompensated care is passed onto the responsible individuals who buy insurance. Justice Scalia's immensely idiotic "Can the government force you to buy broccoli" question aside (the answer to which is that yes, they could, if you ended up eating the broccoli anyway and made the rest of us pay for it), Solicitor General Verrilli did not get the credit in the media that I think he got in the court for explaining the uniqueness of the health insurance and health care markets.
GENERAL VERRILLI: That's a difference and it's a significant difference. In this situation one of the economic effects Congress is addressing is that the -- there -- the many billions of dollars of uncompensated costs are transferred directly to other market participants. It's transferred directly to other market participants because health care providers charge higher rates in order to cover the cost of uncompensated care, and insurance companies reflect those higher rates in higher premiums, which Congress found translates to a thousand dollars per family in additional health insurance costs.
This combination - that costs are directly transferred to other market participants and that everyone - including the uninsured - will at some point need to use health care are intricately related. Costs are directly transferred to the insured because everyone will need health care and no one knows in what amount. That it likely worked as a justification was clear in questioning of the opponents by Justices Roberts and Kennedy, seemingly receptive to the government's argument.
JUSTICE KENNEDY: But they are in the market in the sense that they are creating a risk that the market must account for.
CHIEF JUSTICE ROBERTS: ...Everybody is in this market, so that makes it very different than the market for cars or the other hypotheticals that you came up with, and all they're regulating is how you pay for it.
Another ground the opponents ceded was that Congress did indeed have the power to regulate the insurance market to compel a set of minimum coverage requirements, to require that all are accepted in an insurance plan of their choice (guaranteed issue), and to require a pricing structure that does not discriminate on the basis of health status (community rating). Why is this concession important? Because Congress found that the individual responsibility provision was needed to effectively pursue these regulations without essentially ending the market. In Constitutional lingo, Congress found that the individual responsibility provision was necessary and proper to effectuate what was indisputably in their power to do.

What's interesting here is that in response to Justice Ginsburg's point about the peculiarity that Congress can and obviously has previously mandated the purchase of insurance (it's called Social Security) and yet the opponents were saying that Congress couldn't do it here - seemingly only because it was mandating such purchase in general from a private entity - Mr. Clement went to toil into why he thought Congress' finding was wrong and what other ways there are to keep guaranteed issue and community rating without the individual mandate (for example, by paying for the huge cost shifting through a tax - yes, I know, ha ha ha).  Justice Breyer stepped in and pointed out that it was not the court's role to decide whether the law was a good one or not.

The ceding of the ground that Congress indeed has powers to make several specific regulations in the ACA turns the legal question to a rather different one from simply whether or not Congress can force one to buy something (or as opponents would like it to be viewed, anything). The legal question, in the light of those concession becomes one of whether or not the mandate was indeed a necessary and proper means of instituting community rating and guaranteed issue. Because Congress has a wide latitude to determine for itself what is and isn't necessary and proper, the heavy burden is on the opponents to prove that it was unnecessary or improper, and I don't think they did that here.

In conclusion, one could see yesterday's hearing as "ZOMG Justices asked tough questions of the administration!" That does seem to be the beltway media consensus. But a much more comprehensive review tells us the following:

  1. No one disagreed that Congress has broad authority to regulate the health insurance market under the commerce clause.
  2. No one disagreed that Congress found the mandate necessary and proper to institute its broad regulatory authority.
  3. No one disagreed that Congress can in fact force you to buy insurance. It does, in Social Security.
  4. No one disagreed that Congress in fact has the power to mandate the purchase of health insurance, along with a penalty for not having done so previously. The two sides only clashed with respect to the timing and circumstances of when Congress can force one to do so.
  5. There was no major repudiation of the fact that the penalty indeed arises from Congress' power to tax. The clash here was on whether it was taxing "inactivity."
It is quite clear to me that the disputes are vastly matters of policy and not law. Because the two sides largely agree that Congress has the power to do what it did on the regulatory side, the clash is about how Congress is choosing to institute those regulations. This is where the question is not merely of parts of the Constitution, but about a core principle: the separation of powers. The Supreme Court has to decide if it should substitute its judgment for what is and is not necessary and proper in place of that of Congress. They have to decide whether they are going to overturn not a law but overturn a finding of Congress about what is and is not market activity.

If I'm right, and if those are the central questions governing this case, the media's freakout brigade will turn out to be nothing more than pulling the fire alarm and running out and claiming there is a fire.

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