Holder and Sebelius: The Government Must Eliminate the Cost Shifting It Compels

Writing in yesterday's Washington Post, Attorney General Eric Holder and Secretary of Health and Human Services Kathleen Sebelius say U.S. District Judge Henry Hudson was "wrong on the law" when he concluded that requiring Americans to buy government-approved health insurance exceeds Congress's powers under the Commerce Clause. They argue that "unfair cost-shifting" by uninsured patients "harms the marketplace," which justifies federal intervention. "For decades," they write, "Supreme Court decisions have made clear that the Constitution allows Congress to adopt rules to deal with such harmful economic effects."

As I note in my column today, this argument, endorsed by two federal judges so far, is an extension of the pernicious "substantial effects" doctrine, which holds that Congress may regulate certain activities that do not in themselves constitute interstate commerce because of their impact on interstate commerce. While the limits of this doctrine are unclear, the Supreme Court has repeatedly said it does not cover every activity that can be said to affect the national economy. In 1995 it struck down a federal ban on gun possession in or near schools, refusing to "pile inference upon inference in a manner that would bid fair to convert congressional authority under the Commerce Clause to a general police power of the sort retained by the States." Five years later, it overturned a federal civil remedy for "victims of gender-motivated violence," rejecting "the argument that Congress may regulate noneconomic, violent criminal conduct based solely on that conduct's aggregate effect on interstate commerce." It emphasized that "the Constitution requires a distinction between what is truly national and what is truly local."

The Court's concern that an unrestricted substantial effects doctrine would erase that distinction does not necessarily mean it will overturn the health insurance mandate. But this policy goes beyond anything it has upheld on Commerce Clause grounds before. "Every application of Commerce Clause power found to be constitutionally sound by the Supreme Court involved some form of action, transaction, or deed placed in motion by an individual or legal entity," Judge Hudson noted. "Neither the Supreme Court nor any federal circuit court of appeals has extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market."

Putting the constitutional question aside, the policy argument offered by Holder and Sebelius is misleading, if not disingenuous:

The majority of Americans who have health insurance pay a higher price because of our broken system. Every insured family pays an average of $1,000 more a year in premiums to cover the care of those who have no insurance….

We have to stop imposing extra costs on people who carry insurance, and that means everyone who can afford coverage needs to carry minimum health coverage starting in 2014.

If we want to prevent insurers from denying coverage to people with preexisting conditions, it's essential that everyone have coverage. Imagine what would happen if everyone waited to buy car insurance until after they got in an accident. Premiums would skyrocket, coverage would be unaffordable, and responsible drivers would be priced out of the market.

The same is true for health insurance. Without an individual responsibility provision, controlling costs and ending discrimination against people with preexisting conditions doesn't work….

The individual responsibility provision says that as participants in the health-care market, Americans should pay for insurance if they can afford it. That's important because when people who don't have insurance show up at emergency rooms, we don't deny them care. The costs of this uncompensated care—$43 billion in 2008—are then passed on to doctors, hospitals, small businesses and Americans who have insurance.

The first thing that should be noted is that the Emergency Medical Treatment and Labor Act requires hospitals to treat "people who don't have insurance." So when Holder and Sebelius say "we don't deny them care," they are talking about a federal policy that compels the "unfair cost-shifting" they decry. It seems likely that it also makes young, healthy people even less inclined to buy health insurance, since they know that if they have a sudden, urgent need for medical treatment, they won't be turned away.

Like President Obama, Holder and Sebelius exaggerate the significance of uncompensated care. According to a 2008 report from the Henry J. Kaiser Family Foundation, the annual cost per family is something like $200, with uncompensated care accounting for "less than one percent of private health insurance costs." As I argued in a 2009 column, the main reason ObamaCare compels people to buy insurance is not so they can pay their own bills but so they can pay other people's bills. To prevent a disastrous "adverse selection" spiral, the government needs the money of people who hardly use health care to subsidize the expenses of people who use it a lot. That's the reality to which Holder and Sebelius are alluding when they say, "Without an individual responsibility provision, controlling costs and ending discrimination against people with preexisting conditions doesn't work."

ObamaCare not only requires insurers to cover people regardless of their health; it forbids them to set rates based on expected claims. As commenter Tman notes, that's another reason the analogy to car insurance is inapposite. "If everyone waited to buy car insurance until after they got in an accident," Holder and Sebelius write, "premiums would skyrocket, coverage would be unaffordable, and responsible drivers would be priced out of the market." In this case, they seem to be endorsing risk-based pricing, under which "responsible drivers" with good records pay less than reckless or incompetent drivers who rack up traffic violations and cause accidents. But in the case of health insurance, they want to prohibit risk-based pricing.

Once the government does that, there are consequences to deal with: Healthy people must pay more so that sick people can pay less. Instead of acknowledging this reality, Holder and Sebelius pretend that ObamaCare is all about controlling costs and saving current policyholders money by making sure that Americans who are currently uninsured pay their fair share. It is actually about forcibly redistributing the costs of people who are unlucky enough to require a lot of medical care. Whether you consider that fair will depend on your views about the proper role of government in such matters.

[Thanks to Steve Chaos for the tip.]