Why Did the Feds Need to Do Health Care?

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The chances of a Supreme Court ruling overturning one key provision in our new health care law--the mandate--are looking stronger.  Not good, mind you--libertarians I know are saying it's a perhaps 40% chance, while obviously everyone else is considerably more pessimistic.  But the chances are high enough that progressives are now giving more thought to questions that were mostly ignored (by everyone but crazy libertarians preparing for a court challenge) during the debate last year. 


"How does the Commerce Clause allow the federal government to regulate inactivity?" 

"Where does the mandate penalty fit into its regulatory or taxing powers?"

"Why does this have to be done by the federal government?"

Mostly, proponents of the law seem to have figured that the answer to the first was, "D'uh!", which meant it wasn't necessary to answer the second or the third.  My understanding is that even the rulings from friendly judges have indicated that they're on shaky ground regulating inactivity (though they're more open to the claim that the government is actually regulating the activity of seeking health care that follows the inactivity of not buying health insurance).  This has made it somewhat more urgent to answer the other two questions.

I've already spent a rather exhaustive amount of time talking about the middle question.  I haven't given much attention to the last one, mostly because the answer seems pretty obvious: 1)  The feds can borrow money, while the states can't and 2) if the feds don't do this, many states wouldn't bother.  Naturally, to an opponent, these aren't compelling.  Perhaps they aren't very compelling to the courts, either, because I'm starting to see some attempts at more convincing answers.  Adam Serwer takes one swing at it here:

Health insurance is a specific type of product. Without some kind of federal mechanism, you can't preserve the private insurance market and ensure affordable universal coverage. States that impose mandates will bear the costs of providing insurance for those that don't. This is why Hudson's argument that the commerce clause doesn't give the government the authority to regulate economic "inactivity" in this context rings hollow -- you can't actually choose not to participate in the health-insurance market, because deciding not to buy health insurance drastically affects everyone else.

While the framers may not have predicted the rise of a complex interstate health-insurance market, that's no more an argument against the individual mandate than the failure to include thermal imaging devices in the Fourth Amendment. "The Founders' logic was that the enumerated powers are to map on to areas where you need a federal solution," Balkin says. "You couldn't do this with cars, you couldn't do this with cell phones, you couldn't do this with Cuisinarts. [Health] insurance is special." Conservatives worried about a "food mandate" might remember that unlike health insurance, the price of food doesn't go up dramatically when someone waits until they're starving to eat.

We are agreed that health insurance is a specific type of product.  I differ from Mr. Serwer in thinking that this somehow makes health insurance special.  All products are pretty specific--you rarely encounter a vague head of broccoli, or an abstract Cuisinart, to name two products that health insurance has recently been distinguished from.


It is not actually the case that any one person deciding not to participate in the health insurance market affects everyone else, unless that one person is the sole doctor for thousands of miles around.  No matter how much you might have paid, the insurance market will get along just fine without you.  It is only in fairly substantial aggregates that such decisions start to have noticeable effects.

But even this is does not actually make it somehow unique.  There are very many products that can have big differences in price depending on how many people use them, and how.  The price of airline tickets, for example, would be much higher if everyone waited until the last minute to fly, but this is not a very good argument for making everyone buy their airline tickets six months ahead.  

Any industry with significant economies of scale benefits from a larger customer base, particularly industries like airlines and hotels, where excess "production" (seats and rooms) can't be stored, but disappear as soon as the allotted time expires.  There are lots of businesses where the government could mandate a mass purchase of the underlying product, and thereby probably reduce prices for everyone over the long run.  In some cases, food might even be one of them.  Life insurance, homeowners's insurance, disability insurance, and so forth certainly are--can the federal government mandate these too?  Should they?

(Would such forced purchases maximize consumer welfare?  No.  The purchases would divert resources from other things that consumers like, making those things more expensive, or forcing them to forgo the purchases altogether.  But yes, mandating more airline flights might well reduce the cost of flying, if we could get those planes close to 100% capacity every flight.  And in a similar vein, one can ask whether it really enhances consumer welfare to increase the supply of health insurance while enacting price controls that will at best, do nothing to increase the supply of providers.  But I digress.)

But even if you think that there's a strong argument for having mandated health insurance purchases, neither he nor Balkin makes a good argument as to why health insurance is a special product in need of federal regulation.  It's provided almost entirely at the state level now, and will probably continue to be so provided after this law passes.  There's not much in the bill that couldn't have been done by state governments:  Medicaid expansion, exchanges, mandates and all.  In fact, it has been done by one state government.  If Massachusetts could do it on its own, why can't the other states?

It costs a lot of money, of course.  But the federal government gets its money mostly from the same place that states do:  from the people and corporations within US borders.  Serwer's explanation ("States that impose mandates will bear the costs of providing insurance for those that don't") makes no sense to me.  In what way are health care costs in Massachusetts higher because New York doesn't have a mandate? 

I mean, you can make some argument about it being slightly more efficient for corporations to purchase employee insurance under national standards, except that American employers seem to have managed this problem to date without noticeably impacting the US economy, and also, a uniform set of national standards does not really include forcing private individuals to purchase insurance in a local market which does not noticeably impact the price of employer-based insurance.  Since individuals definitionally cannot be legal residents of two states at once, I don't see much of an interstate commerce argument for regulating their insurance at the federal level.

As I said up north, I suspect the true answer progressives would like to give is not that states couldn't do this on their own, but that they wouldn't--and that this is intolerable.  Obviously, I don't think this is a very good answer.  Variance is the purpose of federalism, not a reason to get rid of it.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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