The main attraction in the upcoming Supreme Court case regarding President Obama’s health care law is the question of whether the mandate to purchase health insurance is a legitimate exercise of the federal government’s power to regulate interstate commerce. Indeed, from a broad constitutional perspective, the answer to that question will determine whether we have a federal government of limited, defined powers or a de facto plenary power limited only by specifically protected rights.
But another question of lesser constitutional significance could be even more important with respect to health care itself: the question of whether the individual mandate can be severed from the rest of the law, leaving everything else intact. If the Supreme Court decides to sever the mandate, the remaining regulations would, in short order, obliterate private health insurance in this country, perhaps paving the way for a completely government-controlled single-payer system.
Many observers discount the risk of the court striking down just the mandate, but that’s precisely what the circuit court did in the case pending before the Supreme Court.
Even the Obama administration agrees that without the mandate, the two most significant insurance reforms in the bill also should be struck down. Its brief says “the court’s conclusion that the guaranteed-issue and community-rating provisions could be severed from the minimum coverage provision was incorrect. Without the minimum coverage provision, the guaranteed-issue and community-rating provisions would not advance Congress’ efforts to make affordable coverage widely available.”
That’s putting it mildly. The guaranteed-issue provision requires insurance companies to issue policies to people who are already very sick, and the community-rating provision requires insurance companies to charge everyone the same premiums. Both are politically attractive, but they have devastating consequences for the economics of the health insurance business. Healthy people have no incentive to purchase insurance, knowing they can always do so after they get sick, and without paying higher premiums than healthy people pay. This adverse selection problem means the pool of people covered by any given insurance company will be smaller and sicker, with healthy people having no rational incentive to buy insurance. That means fewer and fewer people paying higher and higher costs. It’s a death spiral for all but the very largest insurers.
We’ve already seen it happen. Eight states adopted these insurance regulations in the 1990s, with devastating consequences. A 2005 study by Conrad F. Meier for the Council on Affordable Health Insurance, “Destroying Insurance Markets,” showed how extensive the damage was, with insurers stampeding out of those states and premiums skyrocketing. Kentucky lost 45 insurers between 1994 and 1997. John A. Kalosy of the National Association of Health Underwriters explained what happened in New Jersey: “Community rating linked with standard state-mandated plan designs was like mixing nitrogen and glycerin and expecting it not to blow up.”
Of course, the individual mandate will do little to address these problems until the penalties are made far stiffer and more coercive, ultimately forcing everyone to participate in the regulated, bureaucratized health care system envisioned by President Obama’s health care law. That level of coercion violates basic constitutional principles, which is why the Supreme Court is very likely to strike down the mandate.
But if it does so while leaving the rest of the law’s structure intact, it will greatly accelerate the damage done to insurance markets, driving smaller insurers out of business so quickly that it may be impossible to contain the damage. Moreover, the rapid collapse of the private insurance system will be misinterpreted deliberately by proponents of outright government control of the health care system as proof that private insurance was given one last chance and failed.
Even the Obama administration concedes that guaranteed issue and community rating cannot stand without the mandate. At a minimum, the Supreme Court should agree and strike down those regulations. But if it does that and goes no further, that would mean massively subsidizing insurance plans that can exclude pre-existing conditions and charge people different premiums based on their health status, which can’t possibly be consistent with the intent of a Nancy Pelosi- and Harry Reid-run Congress. So the subsidies also should be struck down. Similar logic extends to almost all of the law’s provisions.
The Supreme Court should therefore strike down the whole law, and Congress should start over with health care reform that respects the Constitution and empowers patients and doctors, not bureaucrats and regulators.
Phil Kerpen is vice president for policy at Americans for Prosperity and the author of “Democracy Denied” (BenBella Books, 2011).