Proposed Health Care Legislation is Unconstitutional

That's the conclusion of a detailed article in the Wall Street Journal. The three authors are Mr. Randy Barnett who is the Carmack Waterhouse Professor of Legal Theory at the Georgetown University Law Center, Mr. Nathaniel Stewart who is a lawyer at the firm of White & Case, LLP, and Mr. Todd F. Gaziano who is the Director of the Center for Legal and Judicial Studies at The Heritage Foundation.

They summarize the article as follows:

"The purpose of this compulsory contract(the individual mandate), coupled with the arbitrary price ratios and controls, is to require many people to buy artificially high-priced policies to subsidize coverage for others as well as an industry saddled with other government costs and regulations. Congress lawfully could enact a general tax to pay for these subsidies or it could create a tax credit for those who buy health insurance, but that would require Congress to 'pay for' or budget for the subsidies in a conventional manner. The sponsors of the current bills are attempting, through the personal mandate, to keep the transfers entirely off budget or--through the gimmick of unconstitutional taxes or penalties they dub 'shared responsibility payments'--make these transfers appear to be revenue-enhancing.

"This 'personal responsibility' provision of the legislation, more accurately known as the 'individual mandate' because it commands all individuals to enter into a contractual relationship with a private insurance company, takes congressional power and control to a striking new level. Its defenders have struggled to justify the mandate by analogizing it to existing federal laws and court decisions, but their efforts do not withstand serious scrutiny. An individual mandate to enter into a contract with or buy a particular product from a private party, with tax penalties to enforce it, is unprecedented-- not just in scope but in kind--and unconstitutional as a matter of first principles and under any reasonable reading of judicial precedents."

The authors wade through all the arguments and cases and come to the conclusion that the federal government does not have the constitutional right to require that residents of the US have to purchase a good or service under either the commerce clause or with the limited federal police powers. Also, the taxes levied in the proposed bills are unconstitutional, because they are not proportional by state (that is, if a state has 5% of the population, it should pay 5% of the taxes). The constitution exempts only income taxes from that requirement.

The article makes it clear that the argument that the current health care legislation proposals are just like auto insurance is wrong. First, states have police powers that the federal government does not have. Second, the requirement is that people who want to drive on state owned roads must have licenses and liability insurance to protect the other drivers. It is not a requirement that everyone purchase insurance.

One would hope that some legislators take seriously their oaths to defend and protect the constitution by voting against the legislation. That is unlikely, however. The most likely course is through the courts if the legislation is passed.

How to bring down the price of health care

First, understand that the price of a service is completely different from the cost to deliver the service. The price is what is paid to the provider by the consumers. The costs are the expenses incurred by the provider (salaries, rent, equipment, etc.) in order to deliver those services to the consumer. As consumers, we don't care one iota what the costs are. For most goods and services, we only care about prices. For health care about 80% of us don't even care about that. Hold that thought because it is important. More on it later.

So, as consumers, we should be focused on the ways that prices are kept in check in a normal market place. Worrying about pharmaceutical marketing costs, physician salaries, or the capital costs of the new multi-million dollar diagnostic equipment should not concern us. We should be concerned about getting competitive pricing and let the providers worry whether they can provide the service at a profit. You know how to do it when you buy a camera, a computer, a car, a camping trailer, skis, an mp3 player, auto insurance, life insurance, a house, a mortgage, service to fix your car, or any one of a thousand other goods and services. And because you do, those goods and services have become cheaper over time or you have got significantly more for your purchase.

Want to make sure that happens with health care? We need to do one thing: put the patient back in a position of responsibility. It is no different for health care than any of the other goods and services. Put the consumer in the driver's seat, and quality goes up and price will come down. You can do that with zero extra costs to you right now. The vast majority of you have employer based health insurance or Medicare where some third party besides you makes the decision about what is eligible. Dump them for inappropriate or routine expenses (cosmetic surgery, pregnancy, maintenance drugs, etc.) by insisting that your employer or Medicare base the insurance on a high deductible catastrophic major medical policy with an HSA. For everything but catastrophic levels of expenses, manage your family's health expenses out of the HSA. If you don't use it up, it is yours to accumulate for you to use in your older age when the expenses are even higher.

People who try this approach find that they are more engaged with the physician, that the physician understands more about the patient, that quality goes up, and health care expenses for the family go down.

It is the most effective way to get control of quality and costs. Unfortunately, it is being ignored in the health care reform debate.

The Effects of Community Rating

Let's play a game. You and I will represent two different health insurance companies. We are each competing for a population of 1,000 potential insureds. Make it simple; half are 20 and half are 50. The cost of the 50 year olds on average is three times the 20 year olds: $750 per month and $250 per month respectively.

Now, you are an egalitarian who believes that everyone should pay the same, so you charge $500 per month, which is the average cost of the 1,000 potential insureds. I am a greedy capitalist, so I have a tiered premium structure that follows the cost. That is, I charge the 20 year-olds $250 per month and the 50 year-olds $750 per month. What do you think happens at first? I will get all the 20 year-olds and you will get all the 50 year-olds. I'll make money and be happy because my premium covers the average cost of the group I got. You, on the other hand, will lose $250 per month per insured because you are charging $500, but the costs of group you got is $750.

This is what happens when you charge the average and your competitor is free to charge in relation to what it costs.

So, the government comes up with a mandate for the insurance companies. Now let's say that insurance companies are required to use community ratings. Something different happens: the 20 year-olds opt not to buy the insurance because it costs too much for them. And both companies lose money.

This is also why the insurance companies insist on an individual mandate in return for issuing policies with community rating and no underwriting. That is the only way to assure that the scenarios above won't happen. The averaging process is what happens in group plans. Strange that no one seems to mind that, but they have huge issues with it in an individual context. Could be that the employer is paying or greatly subsidizing the group insurance.

Why do health insurance companies underwrite?

For the vast majority of US residents, they don't. According to the US census bureau, over 80% of the country is covered by group insurance or provided by government. Most of the rest are either insured already, covered but not signed up for Medicaid, or have chosen not to be insured.

For the 35 million or so who may face underwriting, it is a real issue.

So, why do insurance companies underwrite? Basically, to make sure that all policyholders have the same chance to have a claim. That's how the premium was set. They did not set it to accommodate some percent who already had an imminent loss. If they did, their premium would be higher than competitors, and they would not get the business anyway. So, they have to make sure that something that has already happened is not covered. No difference between health insurers and life insurers who are faced with someone with a terminal illness, or homeowner insurers who are faced with a house that is already burned down.

For 80% of the insureds, insurance companies do not underwrite, because the employers pay the total bill. In essence, the healthy subsidize the unhealthy within the employer group. The insurance company does not have to risk the loss. But for individual issues, there is no one to subsidize the unhealthy.

It is a reality that we should all recognize. Insurance companies have no choice about whether to underwrite. We don't like it; they don't like it. We need to work together to develop an approach that recognizes that and quit trying the simplistic dictate of telling them to stop.

And the Winner Is: The US (Unless we Change)

The Nobel committee awarded the 2009 prize in Medicine to three scientists who did their research in the US. Two of the three are immigrants to the US.

The more Nobel prizes in Medicine that are awarded in a country, the more that country contributes to the health of the world. So, I looked into that. Is there any country that seems to be the home of more winners than others? Is there one that stands out as having an environment where research thrives and where important results are obtained more often than any other place? If so, we should do all we can to make sure that the essential characteristics of that place continue to nurture this vital research.

The Nobel prize in Medicine has been awarded since 1901. No one from the US won the award until 1933. Between 1933 and today someone from the US won or shared in the prize in 51 of the 74 years (not awarded in 1940 - 1942). Three out of every four years for almost 75 years, someone from the US has won the Nobel prize for Medicine!

Let's take a look at the time period from 1947 to today. Why 1947? That's when the UK adopted socialized medicine. From 1947 through 2009, the Nobel prize in Medicine was awarded to 145 individuals. Researchers from the US received 83 of the 145 awards. The next closest country received 18. Third place has 8. In the 63 years of awards since 1947, scientists from the US have received awards in 46 of those years.

The US is unique in the world. No other country is even close. Don't you think we should make sure that we know what the source of that magic is before we try to change radically the entire health care industry by introducing new bureaucracies, mandates, taxes, fees, and insurance rule changes?

Health Insurance Across State Lines

Many advocate allowing consumers to purchase health insurance across state lines as an important way to reduce costs. It works, we are told, by avoiding some of the more onerous requirements of some states. For example, MN has 63 mandates for policies sold in its state. ID has 13. The policies sold in MN are more expensive than in ID. It is reasoned, if MN residents could buy ID policies, they would spend less.

First, policies sold in MN cost more than those sold in ID for lots of reasons, most of which would be calculated into an ID designed policy sold to MN residents.

Second, how is a policy sold by a company domiciled in ID and not subject to the mandates of MN going to be regulated? Mandates are not the only subject over which MN division of insurance protects the citizens of MN. They also approve premium rates and marketing material, arbitrate policyholder complaints, regulate required financial strength, and insure that policyholders won't be affected when companies approved in MN are unable to fulfill their commitments to customers. If the MN division of insurance has no say over the mandates, it has no say over the rest of its responsibilities to MN policyholders when they buy a policy from an out-of-state insurance company. And the ID division of insurance has no responsibility for policyholders who live in other states.

People who buy under these circumstances will not save as much as they think, and they will be without vital consumer protections.

These consumers would be protected if the federal government regulated insurance, but then all of us would have the same number of mandates, so there would be no reason for attempting regulatory arbitrage.

Dems Vote to Keep Us From Reading the Bill

I try to stay away from partisan politics in this blog, but this is just too rich to ignore. President Obama and the leaders of the Democrats lectured us endlessly about transparency during the transition and at the beginning of this session. To me, transparency means letting the citizens of the US see what is happening in the halls of government. The Democrats in the Senate Finance committee defeated a measure to require that the committee post the language of any bill and get CBO scoring 72 hours before a vote is taken. The Dems claim that it would add weeks to the deliberations. I guess they don't know that 72 hours is three days. And even if it does add weeks, our right to know, trumps their need for speed.

Here is the article in the American Spectator.