The answer to that question will probably determine the fate of the Patient Protection and Affordable Care Act, also known as ObamaCare. Recently, the U.S. Supreme Court listened to oral arguments from the Solicitor General Donald Verilli and plaintiffs on health care reform legislation. The core argument centers on the individual mandate under the Affordable Care Act where its demise will eventually doom Obama’s signature piece of legislation.
Specifically, ObamaCare requires all private health insurers to not deny coverage to individuals with pre-existing conditions. This means that Suzy, who was recently diagnosed with cancer, cannot be denied health insurance. Whereas before health care reform was passed, most private health insurers would have chosen to not provide her with coverage. That is because insuring her would guarantee that they would have to pay more in medical treatments than they would ever recover in premium payments.
That scenario describes adverse selection, which significantly impacts market activity. Adverse selection means that individuals who are more likely to need health insurance are most likely to seek coverage. That feature makes it difficult for private health insurers to remain profitable.
The combination of eliminating the individual mandate and forcing insurance companies to cover everyone regardless of their condition will be untenable. Sick people will be more likely to seek medical coverage than the healthy, who would now be more inclined to wait until they get sick before obtaining coverage. That is a recipe of financial disaster for insurance companies.
By maintaining the individual health mandate, adverse selection would be minimized because insurance companies could offset covering sickly patients by extracting more premiums from healthy people. With healthy people less likely to use medical care, insurance companies enjoy higher profit margins from that group, thus enabling them to recover losses on more sickly groups.
Conservative justices appear leery about extending more executive power and might deny that the Commerce Clause can be applied here. This principle has been upheld by the Supreme Court, which gives broad powers to Congress in regulating interstate commerce. However during oral arguments, they were questioning whether governmental powers would be unlimited, rather than broad. Thus, they could contend that it is unconstitutional.
This is the key area where Solicitor General Verilli faltered. When peppered by questions from the justices ranging from whether the government could force people to buy broccoli or gym memberships, his answers were evasive. However given the unique characteristics of health care, Verilli should have been able to address this question better.
There is no other market with the exception of health care where a private entity is required by law to provide a specific set of goods or services to an individual at no cost. Private health providers that have emergency room facilities are unable to turn away anyone even when they know that their services will not be paid for.
Is a grocery store required to sell broccoli to any individual, even if that individual is at the brink of death due to starvation? Can a physician, who realizes their patient will die if they do not exercise, force a gym to provide free membership for their patient? Of course, the answer to both questions is no.
While there is currently an explicit non-entry in the health care market, there is always implicit participation in the marketplace. James, who is uninsured, can suffer a heart attack at any moment in time and a private health provider with emergency room facilities must provide services to him, even if he refuses to pay one dime toward service. There is no other market that compels a private seller to provide a specific set of goods or services to all people.
One market that forces participation from the seller is education. However, that scenario only extends to public schools, which are funded by local governing bodies. No private school is forced to take any student for no tuition.
Since all individuals in the U.S. have either an explicit or implicit participation in health care, it is only fair that they pay for this feature due to the free rider problem, which occurs when the individual enjoys a service without paying for it. By potentially gaining free access to emergency care at any moment, we all have the potential to be engaged in health care commerce at any given time. Therefore, one can conclude that maintaining the individual mandate is a necessary, but limited expansion of federal powers that will improve access without destroying the private health care market.