ANOTHER LEGAL ROUND—WITH A MAJOR MISSTEP?

The past week’s appellate court hearing in Atlanta on the constitutionality of the Affordable Care Act, one of a series along the inevitable road to the Supreme Court, showed that the opposing legal arguments are beginning to be firmly established—with each seeming to confuse the purchase of health insurance with the purchase of health care.

The Atlanta panel of three judges, with both Republican and Democratic appointees, heard arguments for and against the earlier ruling by Judge Roger Vinson in Pensacola that the individual mandate was unconstitutional and so central to the ACA that the entire act should be invalidated, and specifically that while the Commerce Clause of the Constitution gave the government authority to regulate interstate commerce, it did not allow Congress to penalize people for the “inactivity” of declining to buy a commercial product.

Former Bush administration Solicitor General Paul Clement, arguing in support of the Vinson decision, agreed that while it could be permissible for Congress to require insurance or other payment by those being treated in an emergency room, because they would already be in the “stream of commerce,” it was a very different matter to require them to pay prospectively for future care.

Acting Solicitor General Neal Katyal, presenting the government’s case, urged the judges to see the ACA requirement not as a mandate to buy an insurance policy, but as a regulation of the payment for care that individuals would inevitably consume. He argued that Americans would not be “conscripted” into the market because the uniquely unpredictable demand for health care would have already placed them there, thus “it’s all about financing, it’s about regulating whether people are paying cash or credit.”

Clement’s characterization of health insurance as a type of prospective payment for service fits neatly into ACA opponents’ argument that if the federal government can require Americans to buy such insurance, there are no effective constitutional limits to prevent it from mandating any other purchase or activity. On the other hand, Katyal’s use of the cash or credit analogy—similarly implying that health insurance is a form of payment for care—may have been a serious misstep.

While the government apparently hopes to build on two precedent Supreme Court decisions that (separately) defined wheat growing and marijuana cultivation for home consumption as falling under the purview of the Commerce Clause, the government case that medical care is an inevitability and so puts every American in the stream of commerce is undermined by the facts: some people never receive care, while others willingly pay for care out of their own pockets at the time they need it.

The problem is in characterizing insurance as a form of prospective payment. An alternative—and probably more accurate—view is that insurance is the sharing of risk, and that the purchase of insurance is payment for participation in the risk pool. In fact, without the sharing of risk, the concept of insurance is meaningless. While the underlying reality may be the same, the practical difference between the two perspectives is that risk is current, universal, and certain; payment for care is not necessarily any of these.

The risk model makes the government’s case for constitutionality of the individual mandate considerably stronger, since it is the failure of the non-insured to participate in the sharing of risk that immediately increases the costs for the insured—something that experience shows very clearly. Moreover, it emphasizes the uniqueness of insurance: although it is clearly a commercial activity, it offers neither a tangible product nor a service activity, only a transfer of risk—thereby helping to counter the “if Congress can require insurance purchase, is there no purchase they could not compel?” argument.

Would the Supreme Court find this interpretation helpful in judging the constitutionality of the individual mandate? Prospectively, it’s impossible to say, but regarding insurance purchase as payment for risk sharing—and therefore something that applies to all Americans, since even those who fail to purchase insurance affect the costs of others—seems more consistent with the intent of insurance than the advance purchase concept offered by both parties to the Atlanta court.