A little over a month ago, when the Supreme Court was first hearing the arguments regarding the constitutionality of the Patient Protection and Affordable Care Act (Obamacare), I wrote a blog outlining the basic questions to its constitutionality and what I thought of them.

Here is a quick refresher:

Opponents of the mandate argue that any law that requires people to purchase something or pay a penalty is unconstitutional. They say that although the Commerce Clause allows the government to regulate markets, it does not say that it can force people to enter markets.

So, essentially, the entire Supreme Court case is to determine whether it is or isn’t constitutional for the government to penalize Americans for not buying healthcare?

Yes, and both sides took different approaches to proving their side.

You can read the entire transcript here:

http://www.usatoday.com/news/washington/judicial/story/2012-03-27/t...

But because it’s pretty long, I’ll try to summarize.

The Solicitor General, Donald Verrilli, who defended the law acknowledged that in most cases the government cannot force people to enter a market. But the healthcare market is unique because consumers often do not have a choice of when to enter the healthcare market. Even if they calculate that they are at a low enough risk that insurance is not worth it, there is still a possibility that they would need emergency care. A study brought up in the case showed that hospital bills in Maryland were 7% higher due to the hospital’s responsibility to incur costs of unpaid care. He argued that for this reason healthcare is a unique industry.

On the other side was Paul Clement, who argued on behalf of the 26 states that challenged the bill. He laid out several arguments for why the mandate should not be law, including a “slippery slope” argument amongst others. He solidified the point that people should have a choice in what they buy, and it was illegal to penalize someone for not participating in a market.

One interesting part of the arguments was that both Clement and the Justices seemed to regularly resort to comparisons to prove validity. At one point a Justice asked if it would also be legal for the government to force people to buy broccoli. Another asked if it should also be required that people buy burial insurance, so as not to place costs on others when they die. Clement also made an extensive metaphor comparing this law with precedents set in the car and agricultural industry.

These examples did a very effective job of bringing into doubt the legality of the mandate. After reading the transcript, it was clear that those trying to prove the unconstitutionality of the mandate certainly had a case.

 

After that, I got rather sidetracked and didn’t really talk about the case.

But my conclusion was basically the same as most amateur and real political analysts: Despite what anyone may think of the laws merits, it was lookin’ kind of unconstitutional.

But lo and behold, on June 28^th, 2012, the SCOTUS upheld the law in a 5-4 decision.

To be perfectly honest, I was happy, but quite surprised. I have always supported the bill and what it aims to do, but I wasn’t sure the constitution would allow a penalty of that sort.

But, as it turns out, it was not upheld as a penalty.

It was upheld as a tax.

Many people who are against the bill were angered at the fact that it was declared a tax when it was officially pitched as a penalty. They said that either Obama lied about what the individual mandate was meant to be, or the Supreme Court got it wrong by mislabeling it a tax.

So what is it? A tax or a penalty?

Well… It’s both.

A tax is meant to raise revenue to fund government expenditures. Obamacare was in need of some additional funding, and the individual mandate tax will greatly help to cover the funding gap.

A penalty is put in place to discourage certain behaviors that society doesn’t like, or is hurt by. Think of it like a reverse tax credit – the government will give you money for doing things that benefit society, like buying “green” technology, but it will impose penalties and take away money for things that hurt the overall economy, in this case, not buying into healthcare.

Well, who gets to say that not buying healthcare is something that is wrong and should be penalized? For many, not buying healthcare is a very rational financial decision.

This is true. But, unfortunately, laws are not based on the scales of justice and morality, but on majority rule. Why is it that networks can be fined for profane language being played on their networks? Why is it that certain drugs are illegal? Why is it that same-sex marriage is illegal in many states? It may be cynical to say, but in almost every country in the world, it is the people of that country that determine what is right and wrong in their nation. It’s the reason why Mauritania accepts slavery within their borders, and why women in Saudi Arabia can’t vote.

But the country is relatively split on the individual mandate. You can’t say that it should be constitutional because the majority want it, and even if you could it’s not clear that a majority even does. 

True, but what people often forget is that the individual mandate is necessary for something if we are to enact an important change that nearly everyone wants.

And what would that be?

The inability to be denied health insurance because of pre-existing conditions.

Ok, I agree that nearly everyone in the country strongly supports the part of the bill that prevents people from being denied because of pre-existing conditions, but what does that have to do with the mandate?

Think about it:

Insurance is a business. It was originally meant as business, and it will probably stay a business. It was clear during the beginning of the healthcare debate that our country loved our free-market system too much for “socialized”/single-payer healthcare insurance. But here’s the thing – if we are going to keep insurance companies as free-market businesses, we need to treat them as such. The reason that insurance companies denied people with pre-existing conditions was that it was simply bad for business.

Just like life insurance companies or car insurance companies, health insurance companies hire actuaries to run risk assessments to determine if covering a person will be profitable. Car insurance companies can deny coverage to bad drivers; life insurance companies can deny those with an extremely high risk of death, so why shouldn’t health insurance companies deny coverage to high-risk patients?

Because we as a country think it is wrong to do so.

Exactly. But we don’t really have the balls to move all the way to a socialized system. We are stuck in this awkward purgatory where we want health insurance companies to remain as businesses so we can claim to be the free-market lovin’ capitalists we claim to be, but we won’t allow them to operate as a logical business would. The inability to deny those with pre-existing conditions would be devastating to the insurance business. Not only would they lose money by taking on even the riskiest patients, exploiting the system would be highly incentivized. What would stop people from applying for health-care only when they need it? Of course people can’t anticipate emergency care, but let’s say I’m 32, don’t have insurance, and start to feel some weird pain in my ankle, or develop a non-fatal chronic disease?

Good thing I can’t be denied for these pre-existing conditions, because I sure as hell need health insurance now!

But the health insurance companies are losing money because they pay for your care, but you haven’t been paying them until now. Insurance works because you pay little amounts all the time, and get big payouts on rare occasions. If people were take advantage of this loophole on a large scale, insurance rates for those who always buy in would be a lot higher to make up for it.

The individual mandate closes this loophole by disincentivizing not having insurance. Health insurance becomes relatively inexpensive, considering I would be paying a yearly fine if I didn’t have it. (This is the penalty part).

But it’s more than that. Healthcare for all only works because, well, all people pay in. When everyone has healthcare, the average cost of insurance becomes significantly less. Insurance companies set rates mainly based on the individual, but also based on the entire money pool. By having everyone in the country enter the pool, the average cost is lower because many newly-insured healthy people pay in, but don’t need many pay-outs.

Couldn’t the companies just charge the same to the sick people, and just make a ton of money off of the newly-mandated healthy people?

Well… they could if they really wanted to, but they won’t. As any conservative economist would point out, businesses are so efficient because they are driven by competition. And if a business can still turn a solid profit after doing so, they will lower their prices/rates to be more competitive with other insurance companies.

But it’s unfair to the young healthy people! Why should those without need be forced to pay money so that those in need have to pay less? 

Like say… Social Security? Medicare? Medicaid?

I just don’t understand why our country is so bi-polar. Maybe it was because we fought the communists for so long that we are trained to reject socialist ideas? Maybe we’re in denial? I don’t know. We clearly have and widely enjoy certain socialist practices in this country such as Social Security, Medicaid/care, public schools, federally subsidized programs, etc.

Hey! Watch it… Those aren’t socialist programs… Just… ya know… “Social Safety Nets”.

Well whatever we want to call them, we as a country have nearly all decided that we should add “fair access to health insurance” to the list.

So here are our options:

1. Keep our system completely free-market, which allows people to die and go bankrupt because they are denied insurance – I don’t think we want this one.
2. A single-payer system where taxes, not the individual, pay for insurance – we clearly have rejected this too.
3. Make it illegal for companies to deny because of pre-existing conditions and put patient protection laws in place – This would probably improve health, but could be catastrophic to the finances of the insurance companies and send rates much higher.
4. Last but not least, Obamacare. Essentially it’s option number 3, but with the individual mandate added.

Maybe I haven’t thought everything through, but it seems to me that we don’t really have a choice. I just don’t see option “2” happening because I don’t think the majority would allow it. And can anyone say that 1 or 3 are better?

Maybe there are more options I haven’t explored.

I’d love to hear them.

- Michael Clauw