Proposed health care legislation includes both employer mandates and an “individual mandate.” Anyone not covered by employer-provided health insurance would be required by law to buy a qualifying health insurance plan or pay a tax.
An interesting debate has arisen concerning whether Congress has authority under the Constitution to require individuals to purchase health insurance.
David B. Rivkin Jr. and Lee A. Casey are perhaps the most prominent opponents:
[C]an Congress require every American to buy health insurance?
In short, no. The Constitution assigns only limited, enumerated powers to Congress and none, including the power to regulate interstate commerce or to impose taxes, would support a federal mandate requiring anyone who is otherwise without health insurance to buy it.
Washington Post columnist Ruth Marcus recently defended the proposition that such a law would pass constitutional muster.
Supporters and opponents argue based on the same Supreme Court jurisprudence, Wickard v. Filburn (1942), which for the first time extended the Constitution’s Commerce Clause to economic activity that does not cross state lines. Previously, Congress’s power to regulate interstate commerce was limited to activity that was both commercial and interstate. Wickard v. Filburn extended the definition of economic activity to non-economic activity that did nog even rise to the level of commerce. The decision said that Filburn’s decision to grow wheat to feed his own chickens was subject to federal regulation by Congress.
Marcus says Wickard v. Filburn gives Congress the authority to mandate the purchase of health insurance:
Congress was entitled to tell Roscoe Filburn how much wheat he could grow to feed his own chickens. Surely, then, Congress could require Filburn’s grandson to buy health insurance.
Marcus’ reasoning, if adopted, would extend Wickard v. Filburn to include the absence of either direct ot indirect economic activity. That is, if Filburn’s grandson decided not to grow wheat, Congress could compel him to do so. In short, a decision not to engage in an activity that is subject to regulation would now be subject to regulation. To say the least, this would be an extraordinarily novel interpretation of the Commerce Clause.
While the constitutional dilemma is interesting, it is important to keep in mind that it arises only because of other elements in the proposed legislation. Proposed legislation includes an individual mandate to deter adverse selection. This problem arises in any insurance market when those with low risks either cannot prove that their risks are low, thus justifying lower premiums, or insurers cannot (or are not allowed to) charge lower premiums to people with demonstrably lower risks. Low risks abandon the market, raising the average risk in the pool, causing the next cohort of low risks to leave as well. This persists until the market self-destructs–in this case, not because of any market failure, but because of governmental interference in the market preventing it from succeeding.
Proposed federal health care legislation would prohibit insurers from charging actuarially fair (and low) premiums to people with low health risks. To be concrete, people who do not smoke, who avoid obesity, and who exercise regularly would not be eligible for lower premiums commensurate with their lower risks. They would be required to pay premiums well in excess of what’s actuarially fair. The reason is that these excess premium dollars are needed to subsidize people with high health risks, and for whom the actuarially fair premium is high. Proponents of legislation do not want to charge high premiums to people with high health risks.
As currently conceived, the individual mandate thus is needed to compel people with low health risks to pay much more than a fair price for health insurance. Each bill imposes a special tax on those who refuse. The tax must be high to be an effective deterrent, but the higher Congress makes the tax the more ugly it becomes politically. The lower the tax, the less effective the mandate will be at deterring adverse selection. The more adverse selection there is in the private health insurance market, the more unstable it will be and the more likely it will be to fail, making the so-called “public option” inevitable.
One can imagine an alternative regulatory design that avoids adverse selection. Insurers could be permitted to charge actuarially fair premiums to all. At the low end of the health risk distribution, premiums would be low enough that few would refuse to buy. It is at the high end of the risk distribution, where actuarially fair premiums are also high premiums, that there would be popular resistance. Some at high risk could reduce their risk and save money by making healthy behavioral changes. Others could not reduce health risk because the source of risk is genetic or reflects pre-existing chronic illness, such as cancer.
Subsidizing insurance premiums for those who cannot reduce their own risk likely would arouse more compassion than controversy. By failing to make this distinction, however, proponents of health care legislation may be exacerbating its inequities, as well as creating a constitutional dilemma that could destroy their program before it gets underway if they cannot persuade the Supreme Court to extend Wickard v. Filburn to individuals’ decisions not to participate in a regulated health insurance market.