Why Supporters of Health Insurance Reform Say It Will Destroy Private Health Insurance

5 March 2011 |

They say politics makes strange bedfellows. Sometimes the law does, too. I have been criticizing the actuarial foundation of The Patient Protection and Affordable Care Act (PPACA), the national health insurance reform measure signed into law by President Obama one year ago this month, for more than an year and a half. Now my views have received support from the most surprising quarter of all: the supporters of the law itself.

In a brief submitted to the U.S. district court, defending the PPACA in a lawsuit brought by 26 states, supporters of Obamacare argued that the provisions of the law guaranteeing coverage to people with preexisting conditions undermine the actuarial foundation private health care insurance and ensure its demise. The judge in the case, Roger Vinson, summarized the argument this way:

Oversimplified, the defendants’ argument on this point can be reduced to the following: (i) the Act bans insurers from denying health coverage (guaranteed issue), or charging higher premiums (community rating), to individuals with pre-existing medical conditions (which increases the insurers’ costs); (ii) as a result of these bans, individuals will be incentivized to delay obtaining insurance as they are now guaranteed coverage if they get sick or injured (which decreases the insurers’ revenues); and (iii) as a result of the foregoing, there will be fewer healthy people in the insured pool (which will raise the premiums and costs for everyone). Consequently, it is necessary to require that everyone “get in the pool” so as to protect the private health insurance market from inevitable collapse.

According to the lawyers for the Obama administration, the recipe for economic poison contained in the PPACA can be transformed into an elixir of life simply by the addition of the individual mandate, a potent ingredient that requires every person in the U.S. to “get in the pool” by purchasing private health insurance, whether they want it or not. Only by compelling the public to buy health insurance through the threat of fines and imprisonment can the economic chaos created by the bill be averted. There is something odd, even perverse, about this kind of logic, especially when it is the lynchpin of the argument supporting the constitutionality of the act. Judge Vinson wrote that lawyers offering support to the states that brought the lawsuit observed that this kind of reasoning would give Congress license to pass bad legislation then tack on a palliative measure, claiming it is constitutionally acceptable under the Necessary and Proper Clause because, without it, the measure will wreak financial havoc. Vinson wrote:

One of the amicus curiae briefs illustrates how using the Necessary and Proper Clause in the manner as suggested by the defendants would vitiate the enumerated powers principle. It points out that the defendants’ are essentially admitting that the Act will have serious negative consequences, e.g., encouraging people to forego health insurance until medical services are needed, increasing premiums and costs for everyone, and thereby bankrupting the health insurance industry—unless the individual mandate is imposed. Thus, rather than being used to implement or facilitate enforcement of the Act’s insurance industry reforms, the individual mandate is actually being used as the means to avoid the adverse consequences of the Act itself.

Judge Vinson continued:

Such an application of the Necessary and Proper Clause would have the perverse effect of enabling Congress to pass ill conceived, or economically disruptive statutes, secure in the knowledge that the more dysfunctional the results of the statute are, the more essential or “necessary” the statutory fix would be. Under such a rationale, the more harm the statute does, the more power Congress could assume for itself under the Necessary and Proper Clause. This result would, of course, expand the Necessary and Proper Clause far beyond its original meaning, and allow Congress to exceed the powers specifically enumerated in Article I. Surely this is not what the Founders anticipated, nor how that Clause should operate.

Since Judge Vinson had already found the individual mandate to not be covered under the Commerce Clause of the Constitution, he could only conclude that the Necessary and Proper Clause could not salvage its constitutionality. “The individual mandate is outside Congress’ Commerce Clause power,” wrote Vinson, “and it cannot be otherwise authorized by an assertion of power under the Necessary and Proper Clause. It is not Constitutional.”

The same argument about negative consequences of the law also convinced the judge that the individual mandate could not be “severed” from the rest of the law, because, as the defendants themselves argued, without it the whole system would collapse. Since the individual mandate could not be severed from the main law, Judge Vinson had no choice but to declare the entire act unconstitutional, which he did.

The ruling, of course, is being appealed. Ultimately the U.S. Supreme Court will decide if Judge Vinson’s finding is correct.

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