This is one of a continuing series of articles the blog will publish over the next several weeks, explaining more fully the new federal health care law, and the Supreme Court’s review of the constitutionality of key parts of that law. This article — the first of three on the specific issue — deals with the heart of the new law: the mandate that virtually all Americans must obtain health insurance by the year 2014. Part I today covers why Congress chose the mandate as the main financing mechanism for expanding health care coverage. Part II will discuss the close tie between the mandate and new obligations imposed on insurance companies. And Part III will discuss how the financial penalty for failing to obtain insurance is intended to work Each part will discuss related constitutional issues. Prior posts in this overall series can be read, in sequence, here and here and here.
Medical care is expensive, and apparently getting more so all the time. The government estimates that Americans now pay out about $2.500,000,000,000 — that’s in trillions — for medical care each year. Since public policymakers have believed for years that more Americans should have better medical care, they inevitably have had to ponder how to pay for it Some individuals have enough money to pay for medical care out of their own pockets, but that seems no longer an option for most of the Nation’s middle class, and certainly not for the poor. Some 50 million Americans do not have health insurance, but for most of them, that is not by choice: they can’t afford it.
Congress concluded, in considering the new Affordable Care Act, that it realistically had only three alternatives for financing what it hoped would be nearly universal access to health care. It could turn on the public treasury money spigot, and pay for such care with tax-raised dollars. It could set up a government-run insurance program, somewhat like Social Security. Or it could entice — or compel — insurance companies to provide more coverage without pushing up premium rates so high that many people would again have to forgo health care or depend on charity to get it. The votes were not there for public financing or for the so-called “public option,” so Congress opted for a version of the third, preserving the existing system of private insurance but altering it in significant ways.
The federal and state governments, of course, have years of experience in paying for some types of medical care with public funds. The most visible examples are the Medicare program for the elderly, the Medicaid program for the poor and the disabled, and the “CHIP” program for children (the Children’s Health Insurance Program). Those are cooperative federal-state programs, with the federal government putting up most of the money needed. In a recent year, federal and state governments paid out $503 billion on Medicare, and $374 billion for Medicaid and CHIP coverage. But, as noted, those programs are for special groups, not the general consumers of health care.
The public subsidy system covers about forty-four percent of health care spending annually. Private insurance, through employer plans or self-financed policies, covers another thirty-two percent. That leaves about twenty-four percent. Some of the consumers of health care do pay for care on their own, not through insurance coverage. But, every year, by federal government estimate, some $43 billion in health care outlays are not covered by insurance or personal payment. Someone has to absorb that, either the providers or the insurance companies — and both try to make up at least some of the shortage. Providers do so by raising fees for service, which are then at least partly shifted to insurers to pay. The insurers, in turn, do so by “spreading the risk” through higher premiums charged to those who do have insurance.
Congress’s main answer (and the most controversial answer) to this $43 billion question is the part of the new law that goes by a technical name, the “minimum coverage” provision. Minimum coverage is what is financed by the new law’s insurance “mandate.” Congress — for the first time ever — has opted to command Americans to buy health insurance, or pay a penalty if they don’t. (Congress, it should be noted, did not expect that the mandate would generate enough new premium money to cover the entire $43 billion gap. It adopted other provisions to help out; those will be discussed in later articles in this series.)
Although much of the popular rhetoric about the insurance mandate, especially the rhetoric from its critics, is about government compulsion of private individuals to buy a commercial product from a private vendor when they don’t want to, Congress sought to show that it was not intending to draft private individuals into saving the health care industry (the way the government in the past has drafted people into the military to protect national security), but rather was asserting more control over the private insurance industry. That is, obviously, a purely economic rationale, and that fact is the reason Congress thought — as a constitutional matter — that it had ample authority to impose a sweeping new regulatory regime over that interstate market, which makes up more than 17 percent of the entire national economy.
That is an industry, the lawmakers knew, that always has been financed by private premiums paid by insured policyholders. And it knew that, if insurers could not “spread the risk” of covering people who are already unhealthy, or may develop serious health problems in the future, the industry could not be successfully commanded to expand coverage significantly. As Congress understood the insurance market, more people had to be paying into it. And the people it targeted were those who did not voluntarily obtain health insurance.
That is a group that Congress assumed (backed up by some data) would not stay out of the health care industry all of the rest of their lives. Sooner or later, it concluded, they would need health care, and it thus is better that they start paying for it before they might actually need it to accomplish two policy goals: to guarantee that they would be insured when they did need care, and, in the meantime, to help pay the way to cover the insurance industry’s risk of expanded coverage. By expanded coverage, of course, Congress meant finding a way to pay for health care not only for the poor, and for that part of the middle class, that could not afford insurance premiums, but it also meant coverage for those who have pre-existing conditions or medical histories of serious illnesses — high-risk patients, in short.
Reaching deep into the organized private insurance market, and dividing it up into different sectors for different types of coverage requirements, Congress identified a package of health care coverage that it considered to be minimally essential. A wide variety of health plans will satisfy that basic requirement, and the new law sets up an almost bewilderingly complex set of changes in insurance industry practices in order to assure the availability of this most basic level of health insurance.
But Congress did not stop with the insurance companies. And that is where the individual mandate comes in. By 2014, Congress specified, all “applicable individuals” (there are eight groups that are excepted from this category) are required to obtain — and, thereafter, to keep in force — “minimal essential coverage” for the adults and for their dependents.
A family can satisfy this coverage requirement if its members have any health plan funded by the government (Medicare, Medicaid, CHIP, military benefits and so on), if they have a plan through an employer, if they buy an individual plan for themselves alone, or if they can arrange some other form of coverage that will get federal government approval. Individuals are not treated differently from families in their obligations to get insured. Congress did not try to spell out what actual medical treatment must be available under the minimum coverage approach; it was focusing on the scope of coverage, not the benefits.
The mandate does not apply to people who have religious objections to it, to undocumented immigrants living in the U.S., to prison or jail inmates, to members of Indian tribes, to low-income individuals or families, to those who go without health insurance for less than three months, and to a catch-all category for individuals whom the government concludes suffer a “hardship” in getting covered by a health plan.
Failure to satisfy the mandate leads to a requirement to pay a penalty along with one’s federal income tax return. (The individual penalty provision will be analyzed in a later article in this series. The new law also imposes a penalty on employers, including state governments, if they do not maintain minimal coverage for their full-time employees. That provision also will be discussed in a later article, although its validity is not being reviewed directly in the present Supreme Court cases.)
It is obvious that the individual mandate was a bold option for Congress to choose to help cover the cost of expanded health care coverage. The majority of the Eleventh Circuit Court, based in Atlanta — the only federal appeals court so far to strike down the mandate — spoke for most observers on all sides of the constitutional dispute when it said the requirement was totally without precedent in the Nation’s history. It remarked: “Economic mandates such as the one contained in the Act are so unprecedented…that the government has been unable, either in its briefs or at oral argument, to point this court to Supreme Court precedent that addressed their constitutionality. Nor does our independent review reveal such a precedent.”
The Circuit Court’s majority went on to say that the absence of such a requirement previously was “telling,” suggesting that the power to do so probably did not exist. “Even in the face of a Great Depression, a World War, a Cold War, recessions, oil shocks, inflation and unemployment, Congress never sought to require the purchase of wheat or war bonds, force a higher savings rate or greater consumption of American goods, or require every American to purchase a more fuel efficient vehicle.”
The two judges went on, of course, to strike down the mandate and the penalty for enforcing it, saying there were “very few instances” in American history “in which Congress has compelled Americans to engage solely as a consequence of being citizens living in the United States.” When government in the past had imposed mandates on individuals in the U.S., the majority said, it limited that to such things as “serving on juries, registering for the draft, filing tax returns, and responding to the census.” Those, it said, were duties of citizenship, each with a foundation in the Constitution itself.
In perhaps the bluntest form of rejection of the government’s theory in support of the mandate, the Circuit Court majority said it was an attempt to “regulate individuals outside the stream of commerce.” The entire basis of Congress’s action in creating this requirement was that no one was outside the stream of commerce that constitutes the health insurance market: no matter how firmly individuals may insist that they do not need insurance, they will, at some time, need health care, according to the government’s judgment. It is only a question of who pays for it, and when, Congress believed.
As a matter of constitutional doctrine, the Circuit Court majority said, “we see no way to cabin the government’s theory only to decisions not to purchase health insurance.” If a single individual’s refusal to buy health insurance can be grouped together with every other individual’s refusal, in order to show commercial activity broad enough to allow Congress to regulate, the majority opinion said, “we are unable to conceive of any product whose purchase Congress could not mandate under this line of argument.” The majority foresaw the prospect of a “command economy,” dictating much of how American families live their private lives. The mandate, it concluded, “is breathtaking in its expansive scope.” The “mere fact of an individual’s existence,” it commented, is not enough to make one an economic player subject to congressional control.
It is apparent, from this one decision by an appellate court against the mandate, that the federal government’s primary task before the Supreme Court will be to put the individual back into the health care market, as an inevitable consumer who should not be allowed a free financial ride when, as a near certainty, he falls ill. The secondary task, it seems, will be to convince the Justices that the power at issue would go no further than health insurance regulation, so it need not be feared as a means to create a “command economy” run from Washington.
(Next in this series: The mandate — Part II, on the insurance industry’s new duties most closely tied to the mandate.)