Monday, December 13, 2010

Is the individual mandate unconstitutional?

The practical definition of what is constitutional these days is whatever Anthony Kennedy thinks. This is the clearest, simplest treatment of the constitutional issue I have read, and makes me think the individual mandate will be upheld eventually (as does private convos with a couple of constitutional lawyers). Here are lengthier discussions of the issues. However, I will leave the constitutionality decision to the Supremes and focus here on what happens to the health system if the individual mandate in the ACA goes away.

The three biggest problems with the health system are: it is unsustainable due to cost; there are many uninsured persons; and there are quality problems in the system. These problems are not isolated from one another, but they are distinct. The Affordable Care Act is mostly a coverage expansion bill with some steps toward dealing with costs; we need many more steps to effectively deal with costs.

While it may seem paradoxical, expanding insurance coverage beyond the 50 odd Million uninsured persons in our country is actually a necessary, but not sufficient condition to addressing costs. [Update:@IncidentalEcon with more on this from Len Nichols]. So, if the individual mandate is unconstitutional and the ACA unwinds, we will be left with a status quo that is not so good. And little hope of addressing costs. Likewise, if Republicans somehow get the repeal they say they want, perhaps after the 2012 election, where would that leave us?
  • 3 in 6 Americans covered by employer based private insurance
  • 2 in 6 will be covered by government insurance
  • 1 in 6 will be uninsured
With the 3 in 6 getting smaller over time as the link between employment and insurance breaks down, and the 2 in 6 gets larger due to population aging. And the plight of the uninsured is familiar: getting some care, albeit delayed, typically of lower quality, and often delivered in the most expensive setting, with the costs shifted to persons with private health insurance via higher premiums.

There are three basic ways that health insurance is financed across the world:
  • Government
  • Employers
  • Individuals
No country has gotten anywhere near a universal coverage system without some type of a mandate, or a mix of mandates, and neither will we. Medicare, for example, is a type of mandate because you must pay payroll taxes, and then you are eligible for insurance.

The reason we have uninsured persons is because the link between employment and insurance is imperfect and some employers don't provide it. The link is likely to continue to break down over time because insurance is so expensive. Others slip through the cracks because they lose their job, but are not eligible for any governmental insurance. Some may want to purchase insurance but it is very expensive if you are priced as an individual and not as part of a large risk pool, and others will be denied because of their health without the insurance reforms of the ACA (the only thing I can think of worse than nothing is no individual mandate but guaranteed purchase, updated with stuff from Austin Frakt via Ezra Klein talking about Jon Gruber). And some choose not to take up offers of insurance, mostly because they are young and don't think they will get sick. They will probably be right unless they are wrong. If they are wrong, we all will pay.

So, if Republicans get their wish and the ACA goes away either via the courts or repeal, then what?
  • Republicans are opposed to government expansions of health insurance. They don't like the expansion of Medicaid in the ACA and certainly don't want an expansion of Medicare to cover younger persons, for example.
  • They are opposed to an employer mandate, and don't like the penalties in the ACA to larger employers who don't provide cover if their employees subsequently get subsidies to purchase insurance coverage. The Clinton Plan and other options in the early-mid 1990s were based broadly on an employer mandate, or so-called 'pay or play' in which employers had to provide coverage or pay a tax to fund government insurance for their workers. Republicans were deathly opposed to this plan, and in their opposition they proposed an alternative: an individual mandate.
  • Now they are opposed to the individual mandate, what has heretofore been their idea. The pragmatic solution that focused on individual responsibility is now a threat to the Republic. It is not clear when they changed their mind, but it seems to have been sometime around Noon on January 20, 2009.

If you are opposed to government insurance, to employer mandates, and to individual mandates, then you have no credible policy to attempt to expand health insurance coverage. And no hope of addressing costs. There are plenty of inconsequential policies that sound great but won't do much, such as selling insurance across state lines.

Maybe there is another way that I just can't see. Maybe the House Republicans will pass a bill in the next Congress that provides their vision for how we can expand insurance coverage and address costs and people will be sold. They control the House and all the Committees. I would love to read their vision for the future of the health care system. They need to move beyond what they are against and lay out what they are for, meaning written in legislative form, marked in a committee, scored by the CBO and so on. We know what you are opposed to in health policy, now show us what you are for.

*I updated this post around 7:00am on 12/14 with posts that made some of my points much better than I had done. Update 12/14, 4:45pm. Ian Crosby of @IncidentalEcon with another good post on the legal arguments.


  1. I disagree to some extent on selling across state lines. I think one of the principle issues on the cost of insurance is the minimum benefit level (this is now much more so the case with PPACA). It is unclear to me how it is efficient or wise to add a 3rd or 4th party to a routine and predictable transaction (which most medical expenses are). This doesn't mean that there shouldn't be any insurance but that the focus of any successful reform should be on catastrophic coverage. PPACA does have some catastrophic but the minimum benefits are such that it could be more accurately described as a PPO with a high deductible. I think what buying across state lines would do is facilitate the existence of a naked HDHP, which i think is the predicate to having a functioning health care system. If you address the tax exclusion then such plans would become popular, if they were more widely adopted more people would actually have an incentive to economize their use and you might realize some administrative savings as more transactions could be conducted without a middle man.

    So, I agree, buying across state lines is no silver bullet, but I think it is a contributing piece to a better functioning health care system.

  2. There is nothing wrong with across state lines, especially as allowed in PPACA when states form across line compacts that make sense. I am sure BCBS Arkansas would be happy to sell me a plan so long as I came to Arkansas to use care, where they have negotiated. A simpler way to get where you want to go is medicare part E--everyone with a very high deductible (say 10k/year), and then allow people to purchase underneath cover if they want with after tax dollars. Let employers provide underneath, but with tax exclusion gone. Give premium support to low income.

  3. "If you are opposed to government insurance, to employer mandates, and to individual mandates, then you have no credible policy to attempt to expand health insurance coverage."

    I am in favor of an individual mandate but I think if PPACA did not specify such a high minimum benefit level the mandate would be less important that it is. And let's be honest, the mandate in PPACA is barely existent. I don't think repeal of the mandate as currently constructed will be the difference between the occurrence or non-occurence of an adverse selection spiral. I largely agree with candidate Obama that people don't buy insurance not beceause they are not forced to but rather premiums are too expensive. One way to ameliorate the problem of price would have been to transition away from first dollar coverage and towards real insurance. In which case a mandate would actually be effective.

  4. Fair points, esp the shift over past 30-40 years away from health insurance as insurance against catastrophic loss and toward mechanism to finance/ensure receipt of care. If conservatives would have talked more about these sorts of issues and not death panels and govt takeover, etc. there could have been a better bill. If the House Repubs pass a bill, maybe there will be a cross Congress compromise.