Commentary Magazine


ObamaCare at the Supreme Court

On March 26, 2012, the Supreme Court will begin hearing five and a half hours of argument on the constitutionality of President Obama’s health-care law. The court will be deciding on no fewer than four separate constitutional and policy issues relating to the law. At the end of this marathon session, the nine Justices will spend several months pondering whether the so-called Affordable Care Act will survive and serve as testimony to President Obama’s ideological boldness—or become a cautionary lesson in the foolhardiness of pursuing large-scale change without an ideological consensus across party lines.

The court is taking this question very seriously, as it should, given the scope of the law and the kinds of changes it represents, not only to the health-care system but also to matters as grand as the separation of powers and the very structure of our constitutional republic itself.

The case could easily have been limited solely to the examination of the constitutionality of the individual mandate—the requirement that every citizen purchase health-care insurance or be brought under the state health-care umbrella provided by government. The Court has chosen, and chosen wisely, to go beyond that and consider the questions of when in the course of its implementation the law can be challenged; whether it can survive if some of its parts are deemed unconstitutional; and the legal implications of the law’s vast expansion of Medicaid, the health-care program for the poor.

The first and most far-reaching question concerns the individual mandate. The issue is whether the federal government can compel an individual citizen to act in a specific way and do so, moreover, at a specific financial cost to himself—absent any behaviors that directly affect the body politic. It has been determined that states can require an individual to purchase car insurance as a precondition for owning and driving a car. But can the federal government require every person to purchase health insurance, regardless of one’s health, economic standing, or private beliefs? As Federal District Judge Roger Vinson memorably posed this question in his opinion, were the mandate to stand, “Congress could require that people buy and consume broccoli at regular intervals, not only because the required purchases will positively impact interstate commerce, but also because people who eat healthier tend to be healthier, and are thus more productive and put less of a strain on the health-care system.”

The central constitutional issue has to do with the Commerce Clause, a provision in Article 1 that has been interpreted in a way that has allowed for the considerable expansion of federal power since the New Deal. The Commerce Clause—which gives Congress the power “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”—does not appear to contemplate to the imposition of a mandate by the federal government to compel citizens to buy a product sold in the private marketplace, to put it mildly. And yet the scope of what now falls under the rubric of “interstate commerce” is startling. In 1942, the Supreme Court (in Wickard v. Filburn) upheld a New Deal law that limited the amount of wheat a farmer could produce, even if it was for personal use, because it might in some inscrutable way affect interstate commerce. This is the seminal case supporters of the health-care law cite in demonstrating the expansive reach of the Commerce Clause.

They ask why the Court would stop the continued expansion of the Commerce Clause in this instance, especially given that health care undoubtedly has an impact on interstate commerce. But in the case of this law, Congress has essentially invoked the Commerce Clause to regulate an “inaction”—a person’s refusal to engage in the economic activity of purchasing health insurance. Opponents argue that if this does not go beyond the scope of the clause, it would be hard to find any form of private business activity that would not fall under Congressional regulatory sway.

A second critical question the Court must address is severability—whether the law’s provisions depend on one another and must stand together, or whether the mandate can be held to be invalid without also negating the other pieces of the law. If the latter, the court will have to determine which pieces will remain and which will have to be dropped. The plaintiffs in the case, a group of 26 states and the National Federation of Independent Business, believe that the whole bill would have to be invalidated, while the Obama Justice Department will argue for maintaining almost all of the rest of the law.

The third issue would result in one of the biggest anticlimaxes in American history on the day the Court delivers its opinion in June. It has to do with the applicability of an ancient piece of legislation called the Anti-Injunction Act, which holds that a tax cannot be challenged before it has been imposed on the taxpayers. The mandate is scheduled to go into effect in 2014. If the Court rules that the mandate is a tax, then it can refuse to issue any decision on the law’s constitutionality until the penalty for not complying with the mandate is upon the American people—in 2015.

The fourth issue concerns the imposition the law makes on the states. It requires states to expand their Medicaid services in order to continue receiving Medicaid funding from the federal government. The grandest claim in behalf of ObamaCare is that it will lead to an additional 32 million people getting insurance coverage. Half of those—16 million—are to be covered by adding them to the Medicaid rolls. The federal government historically provides slightly more than half the money to pay for Medicaid. The Obama health-care law does feature additional federal spending to help pay for this expansion, but only in the short term. Many governors, such as Indiana’s Mitch Daniels, have expressed the entirely plausible fear that the additional federal aid will be only temporary, leaving already strapped states to pay for Obama’s expansive Medicaid ambitions. As it stands, Medicaid is one of the reasons states are going broke at an alarming clip. According to a report by the National Association of State Budget Officers, Medicaid obligations on states grew 10.1 percent last year alone—faster than debt owing to education, corrections, or infrastructure repairs and improvements.

All of these legal and policy issues have created a dog’s breakfast of possible outcomes. Here are the four scenarios the Court has to choose among:

1. Uphold the entire law.

2. Invalidate the individual mandate and/or the Medicaid expansion, but keep the rest of the law intact.

3. Strike down the entire law.

4. Refuse to rule until 2015 when the mandate penalty is first applied.

 

The uncertainty regarding the outcome means that a significant number of states have implicitly chosen not to carry out the law’s requirements until after the Supreme Court rules. This complicates an already disastrous implementation process that is placing undue pressure on the existing system. According to Stuart Shapiro, a professor of public policy at Rutgers, the mean time for completing a regulation is about two and a third years. The Congressional Research Service estimates that the U.S. Department of Health and Human Services has missed more than one-third of its mandated implementation deadlines for the Obama health-care law. Remember: This massive and wildly complex law goes into full effect in fewer than two years. This means it may kick in without a completed rule book.

Implementation delays are a problem at the state level as well. Some states, most of them red, are not inclined to build the health-care “exchanges”—the regulatory entities that will govern the new system—and are instead using this period of legal uncertainty as an excuse not to proceed.

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What happens substantively if the Supreme Court rules in favor of the Obama health-care law? First, states that have until now been holding off on developing health-care exchanges will have one less excuse for delay. They can, of course, make the case that political uncertainty justifies additional waiting, but that is a tough argument. For the Republicans to repeal ObamaCare after a favorable Supreme Court ruling would require the November 2012 election to feature an overwhelmingly positive result for them, with the GOP winning the White House, taking over the Senate, and retaining the House of Representatives.

Then, assuming all of that happens, a repeal bill would have to pass the House and Senate, and be signed into law by the new president. The House passage and presidential signatures are not difficult to imagine in this scenario, but unless Republicans can craft a 60-seat majority for their view in the Senate, Republicans will have to rely on a very complex strategy involving the backdoor legislative process of reconciliation to succeed.

This scenario seems so unlikely that even governors sickened by the thought of implementing Obama-Care might find it prudent to go ahead anyway, because if they don’t, they will have a “health-care exchange” imposed on them by the Obama administration. Under the law, if a state does not comply with the requirement to create one of these exchanges on its own, then the federal government must intervene and develop a federal exchange for that state. Although the Department of Health and Human Services has been understandably quiet about its plans on this front, it appears likely that HHS will have to build federal exchanges in at least three states (Alaska, Florida, and Louisiana) that have openly stated they will not comply.

If widespread implementation of the exchanges takes place after the Supreme Court decision, then a clean repeal of the Obama legislation becomes that much harder to achieve, even if Republicans score a total victory this November. Furthermore, a Democratic victory in November in any of the three overall federal contests—retaking the House, holding the Senate, or Obama being reelected—means the likelihood of the law’s going into effect becomes overwhelming. Once in effect, the law will lead exactly to the results conservative health-care experts have been warning against for the past three years: Costs will continue to rise; innovative technologies and procedures will dwindle; significantly more citizens will become dependent on the federal government for their health coverage; and the American people will be burdened with one more entitlement that will be a political nightmare to fix.

Perhaps even more important, a Supreme Court win for the Obama health-care law would have a ripple effect that goes beyond the health-policy realm and touches on the question of the unprecedented reach of the federal government. The current Supreme Court is generally called a conservative one, at least by the standards of mainstream media and Washington elites. Yet if even this Supreme Court agrees that an individual mandate is constitutional, the Commerce Clause will have been fundamentally breached, and Congress will be able to act almost without limit.

It is clear, then, that a straight-up victory for the Obama health law would be a devastating blow to the prospect of creating an alternative to our inefficient and costly health-care system—one that is consumer-oriented, doctor-focused, innovation-driven, and market-based. It would also become much less likely for the courts to rein in future policy excesses in almost any sector of the economy. For the Obama administration, this is the best-case scenario, and it is a chilling one for advocates of limited government and free markets.

But what of the other potential legal outcomes: a split decision, a win for the law’s opponents, or a punt until 2015? Here the crystal ball becomes clouded. Republicans would certainly welcome a Supreme Court invalidation of the entire law, and they should—not only because it would deliver the country from a disastrous policy, but also because it would provide a devastating argument against the president in the upcoming election. If his signature accomplishment is found unconstitutional, he will face the voters with almost nothing to show for his first term.

At the same time, Democrats, and particularly the Obama administration, might find complete invalidation preferable to the unholy mess of a mixed result, in which the individual mandate or the Medicaid expansion is overturned, but with the rest of the law in place. The Obama administration acknowledged this in their brief for Florida et al v. U.S. Department of Health and Human Services, arguing that the mandate was the core element of the law. As Judge Vinson wrote in his opinion, striking it down entirely: “The defendants concede that [the individual mandate] is absolutely necessary for the Act’s insurance market reforms to work as intended. In fact, they refer to it as an ‘essential’ part of the Act at least 14 times in their motion to dismiss.”

The flawed premise of the Obama law is that the administration can use its regulatory powers to force the insurance companies into doing what it wants—covering a vast array of services for all individuals regardless of their condition and being unable to drop individuals. These are undoubtedly noble goals, but they come with high costs, and insurance companies will need to increase rates considerably to pay for the type of open-ended coverage the Obama administration envisions. The sweetener in the deal is the mandate, the notion that every individual must purchase health insurance regardless of whether it is in his economic self-interest to do so.

The mandate is such an essential factor because the insurance model is based on risk, which is mitigated by paying careful attention to actuarial calculations regarding the participant pool. Insurance companies use these calculations to calibrate the costs of whom they can insure and the premiums they need to charge to provide coverage. These calibrations lead insurers to create politically unpopular but economically necessary features, such as higher costs for higher-risk individuals, rules against covering individuals with preexisting conditions, mandatory checkups before signing up, and the like, in order to have a sustainable business model. Of course, viewed from the outside, these are the very features that make insurance companies convenient targets for demagoguery.

Low-risk individuals, in contrast, often choose not to purchase insurance. According to the Commonwealth Fund, Americans between the ages of 19 and 29 are disproportionately uninsured, making up about a third of the total uninsured population. Estimates of the soi-disant young invincibles range as high as 14 million. From the perspective of many of the young and uninsured, the high cost of premiums at a time when their earning power has yet to take off is often not worth their relatively low level of usage of health-care services. This is precisely why insurance companies desperately want those millions of customers. The individual mandate would force them, and their dollars, into the arms of the insurance companies.

Without the mandate, however, the insurance companies will be caught in a bind. They would face the prospect of being forced to take on high-cost individuals without the compensation of a broader pool to make that financially possible. Such a scheme cannot and will not work, and the Obama health plan would collapse of its own weight. Even the Washington Post’s Ezra Klein, one of the law’s proponents, observed: “Kill the individual mandate and you’re probably killing the bill, too.”

The country faces a similar quandary with respect to the Medicaid expansion. From the Obama administration’s perspective, though, a court ruling that limited the Medicaid expansion would mean that they face a significant limitation on their mechanism for covering half of the individuals that the plan means to cover. In this sense, as well, a complete loss in court could potentially be better than a partial loss.

Indeed, from a political perspective, a complete defeat at the hands of the Supreme Court coupled with the reelection of Obama could open the path for the Obama administration to push for a single-payer health system in the second term. That is, after all, the desideratum of many on the left—including a pre-presidential Barack Obama. In fact, Obama admitted in 2008 that a single-payer system was his preferred approach: “I happen to be a proponent of a single-payer universal health-care program….A single-payer health-care plan, a universal health-care plan. And that’s what I’d like to see. But as all of you know, we may not get there immediately.” Unlike the mandate, and despite all its policy weaknesses—among them unambiguous health-care rationing—a single-payer system would probably not be unconstitutional.

The Supreme Court’s fourth option—the punt to 2015—is worth considering as well. For a variety of reasons, there is a real chance that the Supreme Court could aim to avoid political controversy by doing this. In this scenario, both sides would claim some kind of victory. The Obama administration would use the decision to compel resistant states to begin the implementation process. The law’s opponents would see an opportunity to fight another day and, if the Republicans take back the White House, a potential for an improved Supreme Court configuration to examine the issues.

What a mess.

It was not always a given that we would reach this pass. Many on the American left scoffed at the notion of a significant legal challenge to the health-care law when the subject was first discussed during the year it took for the law to get through both houses of Congress and make it to the president’s desk and after its signing. When former House Speaker Nancy Pelosi was asked about the possibility of a constitutional challenge to the individual mandate, she dismissed it. “Are you serious?” she scoffed, and then repeated herself: “Are you serious?”

It is understandable that those on the left might think that passage of the law would mean the end of the conversation on the subject. Over the past century, bipartisan expansions of the welfare state have tended to be absorbed rather quietly by the body politic. Some expansions, like Medicare, were initially opposed and long postponed but later garnered votes from both Democrats and Republicans, which muted the calls for constitutional consideration. The Obama health law stands in stark contrast to this history of bipartisan compromise. It was passed on a strictly partisan vote; only the opposition was bipartisan, as some Democrats joined the Republicans in standing against it.

As a result of the ideological strong-arming that accompanied the law, the lamb-like acceptance of expanded federal power did not follow, which caught liberal elites and Team Obama by surprise. The Supreme Court now has it within its power to decide whether that partisan power grab was an ideological masterstroke or one of the greatest political and policy mistakes in American history.

About the Author

Tevi Troy is a senior fellow at the Hudson Institute and a former deputy secretary of the Department of Health and Human Services.