The following is an essay for our symposium by Neil S. Siegel, Professor of Law and Political Science and Co-Director of the Program in Public Law at Duke Law School, where he teaches U.S. constitutional law and theory. Last week, he blogged about his theory of collective action federalism on The Volokh Conspiracy. He recently joined an amicus brief of constitutional law professors that relies in part on collective action reasoning to defend the constitutionality of the individual mandate.
The minimum coverage provision, or "individual mandate," in the Patient Protection and Affordable Care Act (ACA) requires most individuals lawfully living in the United States to obtain a certain level of health-insurance coverage or pay a financial penalty. The subject matter regulated by the individual mandate can be characterized as the interstate health insurance market. This characterization makes the mandate appear to regulate inactivity (not buying health insurance). The mandate requires individuals to enter into an insurance contract, potentially against their will, on pain of paying a penalty if they refuse. Constitutional critics of the mandate prefer this characterization.
Alternatively, the subject matter regulated by the mandate can be characterized as the interstate health care market. Almost all Americans participate in this market in some fashion, and all have subsidized access to it in the event of an emergency. Each year, uninsured Americans in this market obtain more than forty billion dollars' worth of medical services for which other individuals and institutions must pay. This characterization makes the mandate appear to regulate the activity of delivering and receiving health care. Constitutional defenders of the mandate prefer this characterization.
This distinction between inactivity and activity, however, has nothing to do with the limits of the Commerce Clause. As Robert Cooter and I have recently articulated in Collective Action Federalism: A General Theory of Article I, Section 8, 63 Stan. L. Rev. 115 (2010), the commerce power is best understood in light of the collective action problems that the nation faced under the Articles of Confederation, when Congress lacked the power to regulate interstate commerce. The presence or absence of interstate collective action problems is key to understanding the scope of the commerce power.
This structural approach to the Commerce Clause is well-grounded in constitutional history, text, and much judicial precedent. It also flows directly from the relative advantages of the federal government and the states. Much of what the federal government does better than the states is solve collective action problems that the states cannot deal with effectively on their own. According to the theory of collective action federalism, the expanse and limits of the commerce power turn in substantial part on the difference between individual and collective action by states.
One way a collective action problem arises is when people benefit from collective action regardless of whether they contribute to it. Social scientists have a term for this kind of externality, this failure to participate in collective action "“ this "inactivity." They call it free riding on the contributions of others to collective action. The Framers of the United States Constitution understood this phenomenon well; indeed, the pervasiveness of the practice among the states during the Critical Period of the 1780s inspired the Constitutional Convention.
To overcome failures to participate in collective action whose effects spill across state lines, Article I, Section 8 authorizes Congress to mandate numerous kinds of private action, including by using the commerce power. Examples include, but are not limited to, federal statutory requirements to file a tax return, respond to the census and do so truthfully, report for jury duty, register for selective service, make child support payments, register as a sex offender, respond to a congressional subpoena, and surrender one's property to the federal government when it exercises the power of eminent domain pursuant to its use of the Commerce Clause. In addition, Congress almost certainly has commerce-power authority to mandate that individuals submit to vaccination in order to stop the spread of a flu pandemic across state lines.
The distinction between individual and collective action by states is an appropriate place to look for limits on the scope of the Commerce Clause. The distinction between inactivity and activity is not. Like other formal distinctions that have been introduced throughout American history in order to limit the commerce power, the distinction between inactivity and activity is ungrounded in constitutional structure, text, and history. Moreover, the distinction is arbitrary in a critical sense: it does not speak to the basic question of why we have a commerce power to begin with "“ the question of what the federal government can accomplish better than the states can accomplish by acting on their own.
Accordingly, even if the individual mandate in the ACA is viewed as regulating inactivity (declining to purchase health insurance), the regulability of this inactivity by Congress turns substantially on the character of the collective action problem that the mandate aims to solve. The object of congressional regulation must be fairly describable as "economic" in nature, and Congress must be attempting to solve a collective action problem that exists "among the several States." If Congress is not attempting to solve a collective action problem involving multiple states, then Congress may not invoke its commerce power.
Whether Congress is mandating private action is irrelevant to the Commerce Clause inquiry. Congress can mandate private action using its commerce power when those who fail to act in a certain way thereby free ride off the contributions of others to collective action, and the states are "separately incompetent" (in the words of the Constitutional Convention) to solve the problem on their own because the scope of the problem disrespects state borders. The states are "separately incompetent" when they impose significant costs on one another without paying for them.
The decision not to purchase health insurance is economic. This is illustrated by the close analogy to the financial decision of business enterprises to "go bare" with respect to a risk and rely on federal bankruptcy protection in the event the risk materializes. Thus, the decisive question is whether an individual mandate to obtain health insurance coverage aims to solve a collective action problem involving multiple states.
It does. It addresses a free rider problem that spills over state boundaries. There is a free rider problem because a financially able individual who declines to obtain health insurance free rides on benevolence. Pursuant to federal and state law, as well as the longstanding charitable practices of most American hospitals, others will pay a significant share of the cost of medical treatment rather than let an uninsured person go untreated.
Moreover, even when the uninsured individual does not receive medical care for the time being, he benefits from the existence of the health care infrastructure and can rely on its availability in case of emergency. An individual mandate to obtain health insurance coverage is designed to overcome risk taking in reliance on benevolence.
Moreover, economic theory and empirical evidence suggest that this free rider problem is interstate in scope. It is interstate in scope primarily because of the operation of many insurance companies in multiple states, the phenomenon of cross-state hospital use, and the interstate migration (or immobility) of insurance companies and individuals in partial response to the existence of different state health care regimes.
Accordingly, the mandate is within the scope of the commerce power standing alone. One need not (although one may) rely on the Necessary and Proper Clause or the tax power to establish its constitutionality.
The free rider problem that the individual mandate aims to ameliorate links the federalism dimension of the constitutional debate over the ACA to the doctrinally separate and suppressed individual rights dimension. Just as the scope of the problem of free riding on benevolence justifies federal power to require individuals to obtain health insurance coverage, so the existence of this problem illuminates the difficulty of arguing directly "“ as opposed to indirectly through the Commerce Clause "“ that the individual mandate infringes personal liberty. There are serious obstacles that must be overcome in order to establish that the liberty claims of free riders warrant social recognition, so that not even states may impose an individual mandate. These obstacles are illuminated by the longstanding tradition of argument in economics that market failures justify government regulation.
To be sure, American constitutional law and culture recognize, or decline to recognize, assertions of individual rights for a richly overdetermined, historically contingent, and right-specific set of reasons. But it is difficult to come up with many instances in which able individuals are deemed to possess a right "“ whether as a matter of constitutional law or political morality "“ to obtain the benefits of collective action without in any way contributing to it.