President Barack Obama's signature on the heal...

Pres­i­dent Barack Obama’s sig­na­ture on the health insur­ance reform bill at the White House, March 23, 2010.

Today marks the first two hours of six hours of Supreme Court tes­ti­mony, over three days, on U.S. Depart­ment of Health and Human Ser­vices v. Florida, which serves to adju­di­cate the con­sti­tu­tion­al­ity of the Patient Pro­tec­tion and Afford­able Care Act (PPACA, ACA, or Oba­macare). It’s now three days since the sec­ond anniver­sary of Pres­i­dent Obama sign­ing the ACA into law.

Today and tomor­row, the argu­ments are focused on the ques­tion of the con­sti­tu­tion­al­ity of the indi­vid­ual man­date. Wednes­day, argu­ments shift to answer two ques­tions. First, does Con­gress have the author­ity to require states to com­ply with the new Medicare pro­vi­sions in order to receive fed­eral fund­ing for their Med­ic­aid pro­grams? Sec­ond, if the indi­vid­ual man­date is uncon­sti­tu­tional, does that inval­i­date the ACA in its entirety, or is that pro­vi­sion severable?

There is also a subtopic that, while is not offi­cially sched­uled for dis­cus­sion, may well be cov­ered over the three days. If a per­son who is required to be insured (there are eight cat­e­gories of peo­ple who are excluded from the indi­vid­ual man­date) doesn’t have suf­fi­cient med­ical cov­er­age dur­ing the year, that per­son is charged a penalty as part of the annual income tax fil­ing due April 15. This calls into ques­tion whether the penalty is essen­tially a tax. If it is, then it is cov­ered by Sec­tion 7421 of the Tax Anti-​​Injunction Act. Sec­tion 7421 states that “no suit for the pur­pose of restrain­ing the assess­ment or col­lec­tion of any tax shall be main­tained in any court by any per­son, whether or not such a per­son is the per­son against whom such tax was assessed.” This has been inter­preted by the judi­cial branch as pro­hibit­ing tax­pay­ers from fil­ing an injunc­tion against a tax. One can, how­ever, pay a tax and then file suit for recov­ery of the tax. Every court to hear the case thus far has agreed that the indi­vid­ual man­date penalty is not a tax, but is rather a reg­u­la­tory penalty. The Supreme Court has an oppor­tu­nity here to weigh in.

The ACA itself has five parts:

  • the indi­vid­ual mandate
  • restric­tions on insur­ers’ behav­ior (e.g., no denials for preëx­ist­ing con­di­tions, no refusal to insure, caps on pre­mium increases)
  • expan­sion of states’ require­ments for Medicare
  • the cre­ation of med­ical insur­ance exchanges
  • the impo­si­tion of penal­ties for com­pa­nies that don’t pro­vide ade­quate health insurance

Only the first three parts are being con­sid­ered by the Supreme Court this term.

The intent of the ACA, despite “afford­able” being part of the title, is mainly expan­sion of cov­er­age, tar­geted at those who do not have health insur­ance but wish to have it. To this end, the ACA pre­vents insur­ers from deny­ing poli­cies to appli­cants (“guar­an­teed issue”). Because, under “guar­an­teed issue”, exist­ing under­writ­ing prac­tices would result in pre­mi­ums ris­ing by sev­eral times, the law places caps on the rise of pre­mi­ums. This leaves the insur­ance com­pa­nies with no choice but to increase the base of insured, by hav­ing health­ier peo­ple sub­si­dize less healthy peo­ple. This require­ment is the basis for the indi­vid­ual mandate.

The ACA, then, is designed to shift much of the “off the books” med­ical care expen­di­ture to more overt chan­nels. To a degree, this shift func­tions in a way akin to Social Secu­rity, where money is put in at an ear­lier date to sub­si­dize older peo­ple, with the under­stand­ing that the next gen­er­a­tion will do the same for the cur­rent gen­er­a­tion. The Social Secu­rity anal­ogy breaks down pretty quickly; since one can­not pay the gov­ern­ment for the insur­ance, it’s dis­tinctly pos­si­ble that some­one would pay, say, Aetna for health insur­ance when she’s healthy, but be cov­ered by Blue Shield when she’s ill later on. Fur­ther­more, pay­ing into Social Secu­rity is pay­ing a tax; pay­ing insur­ance pre­mi­ums is clearly not.

And this is the crux of the argu­ment against the indi­vid­ual man­date. The pre­mi­ums are not taxes, yet every­one is com­pelled to pay them, in a way that sounds sus­pi­ciously like a tax. Yet the pre­mi­ums are not truly han­dled as taxes. If one fails to pay taxes, the gov­ern­ment can gar­nish wages, or even imprison the offender. If one fails to pay the insur­ance pre­mium, the extent of the government’s options is to charge a penalty. And the pro­ceeds go to pri­vate indus­try, rather than the government.

Tra­di­tion­ally, the point of tax­a­tion was to pay for ser­vices that apply to all of us, which means that we are inher­ently unable to opt out, short of leav­ing the coun­try and gain­ing cit­i­zen­ship else­where. The indi­vid­ual man­date requires par­tic­i­pa­tion in a par­tic­u­lar sec­tor of the econ­omy, much like gov­ern­ment. But is it rea­son­able in the 21st cen­tury to expect any res­i­dent of the United States to truly opt out entirely from the med­ical indus­try? Would we as a soci­ety pre­fer to iden­tify “con­sci­en­tious objec­tors” and deny them access to any health­care out­side of pure pay-​​for-​​service?

As it stands today, with­out the ACA’s pro­vi­sions that take effect next year, those who buy health insur­ance on the pri­vate mar­ket often find them­selves con­sid­ered unin­sur­able, unless the state in which they reside main­tains a high-​​risk pool. And even in states that do, the cost of health insur­ance for such peo­ple is typ­i­cally in excess of $15,000 per per­son per year, a num­ber that does not include the cost of copay­ments and deductibles. This prices many peo­ple entirely out of the market.

For those states with­out a high-​​risk pool, and even for some with, the pub­lic ends up, through a num­ber of dif­fer­ent mech­a­nisms, bear­ing the cost of health­care for those the insur­ance com­pa­nies con­sider unin­sur­able. This hap­pens because we have, as a soci­ety, agreed that med­ical care should not be denied on the grounds of a per­son being unable to pay for the care.

So today I leave you with a hand­ful of ques­tions, as usual:

  • Do you think the indi­vid­ual man­date is constitutional?
  • If not, would you con­sider it con­sti­tu­tional if everyone’s taxes were raised by an amount equiv­a­lent to the penalty, but with a tax credit for those who have insur­ance meet­ing the ACA’s min­i­mum requirements?
  • How do you think the Supreme Court will rule on this and why?

We’ll leave the sev­er­abil­ity and state com­pul­sion issues off the table for today.

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