Without A Mandate, ObamaCare Won't Work. Oh No!


In The New York Times, David Leonhardt defends ObamaCare's individual mandate to purchase health insurance—and warns of what might go wrong if it is repealed:

Two federal judges upheld the individual mandate this year, saying that it fell under Congress's power to regulate commerce. But Judge Henry Hudson, of a Federal District Court in Virginia, ruled on Monday that Congress had overstepped by prohibiting a form of inactivity — that is, not buying insurance. And as Reagan did with Medicare, Judge Hudson argued that the mandate had a larger meaning: he said it "would invite unbridled exercise of federal police powers."

In truth, the law is quite moderate. It is more conservative than President Bill Clinton's 1993 plan or President Richard Nixon's 1974 plan (in which the federal government would have covered anyone who wasn't insured through an employer). It's much more conservative than expanding Medicare to cover everyone. It is clearly one of the least radical ways for the United States to end its status as the only rich country with millions and millions of uninsured.

But the law depends to a significant degree on the mandate. Without it, some healthy people will wait to buy coverage until they get sick — which, of course, is not an insurance system at all. It's free-riding.

Without the mandate, the cost of insurance in the individual market would rise, perhaps sharply, because some healthy people would not be paying their share. Just look at Massachusetts. In 1996, it barred insurers from setting rates based on a person's health but did not mandate that individuals sign up for insurance. Premiums then spiked. Since the state added a mandate in 2006, more people have signed up, and premiums have dropped an average of 40 percent.

By necessity, there is some subjectivity to the term "moderate," but Leonhardt's case for why the law should be described that way is made entirely on the basis of what the law is not: Nixon's failed plan, HillaryCare, or Medicare for all (ie: single payer). But even if one agrees that these proposals were extreme, that doesn't reduce ObamaCare's fiscal impact or its constitutional overreach. It is hard to label the mandate, in particular, as "moderate." The Congressional Budget Office has described it as an "unprecedented form of federal action." The federal judge in the Florida case has described it as both "novel" and "unprecedented." And, as Leonhardt notes, a federal judge in Virginia ruled the mandate unconstitutional. So here we have a law that calls for unprecedented federal action and, in doing so, tests and perhaps goes beyond the constitutional limits of Congressional power. But somehow it's "moderate?"

Leonhardt also notes that without the mandate, premiums would rise "because some healthy people would not be paying their share." But as Jacob Sullum argued earlier today, the only reason for this is that, starting in 2014, the law restricts insurers from engaging in most risk-based insurance pricing. The free-riding Leonhardt warns about is enabled by regulation prohibiting insurers from selling policies that match cost with risk, forcing everyone else to pick up the slack.  

So sure, it's probably true that premiums would rise if only the mandate were stripped from the law and the rest left to stand. If that happened, as Leonhardt says, healthy people would exit the market, waiting to buy insurance until sick, leaving a smaller pool of sick (and expensive) individuals. As I've said before, repealing just the mandate isn't a fix for ObamaCare's flaws.  

But even that is hardly reason to worry. Because the law lacks a severability clause, which would have let the rest of the law stand should one part be ruled unconstitutional, it's not likely that the mandate will be killed while the rest of the law is left untouched. Instead,the Supreme Court would likely follow Judge Hudson's lead and "sever with circumspection," jettisoning provisions that cannot function without the unconstitutional section but leaving the remainder intact. That means that the rules requiring insurers to sell to everyone and limiting risk-based pricing would likely be out the door. (As Judge Hudson's ruling notes, the Obama administration has made the fact that the insurance rules and the mandate are inextricably bound together central to its case: "The Secretary characterizes the [mandate] as the vital kinetic link that animates Congress's overall regulatory reform of interstate health care.")

This also provides some context for what happened in Massachusetts. Premiums on the individual market did drop after the introduction of the mandate—but that's to be expected when you bring a lot of younger, healthier people into an insurance pool after a decade of rules requiring insurers to sell to anyone and limiting pricing based on preexisting conditions. The only reason a mandate would reduce prices similarly nationwide is if those regulations were already in effect at the federal level and had driven up costs accordingly. They're not. ObamaCare doesn't require insurers to abide by these rules until 2014. And, as I already explained, if the mandate is invalidated, those rules are likely to be cut as well.

So the reason for a mandate is that it offsets the cost of other expensive regulations—regulations which can be expected to be dropped if the mandate is ruled unconstitutional.

And in the broader picture, it's the constitituonality of the mandate—not the policy or the politics behind it—that matters for the purposes of these challenges. Whether the law is moderate, timid, or extreme is not what's up for review. The task of the courts in examining the mandate is solely to determine whether it passes constitutional muster. The law may well "depend to a significant degree" on the mandate. But if that's the case, and if the mandate is unconstitutional, then the mandate—as well as the rest of the law—should go.