Monday, April 2, 2012

Health-Care Economics Too Hard for Some on High Court

      The law and economics movement has correctly been called the most influential intellectual movement in American law of the late twentieth century. Over the past several decades, a growing number of law professors and think-tank fellows, mostly on the political right, have preached to judges and lawyers the importance of carefully analyzing the real economic effects of laws and regulations.
      The Supreme Court, under three successive chief justices, has embraced the movement’s teachings to some extent, in particular in rulings that have narrowed federal antitrust law. But the economics of the health-care industry proved too much for some of the court’s conservatives in last week’s showdown on the constitutionality of the Patient Protection and Affordable Care Act. Time and again during the March 27 arguments on the law’s pivotal provision, the individual insurance mandate, conservative justices either failed or refused to grasp the realities of the U.S. system of financing health care.
      As Solicitor General Donald Verrilli explained at the start of an admittedly uneven hour at the lectern, Americans pay for health care through insurance. The insurance is provided by tax-subsidized employer health plans or by the government: Medicaid for the poor, Medicare for those over 65. No one self-insures for medical care throughout his or her lifetime.
      Some people, however, have no insurance. Some are unemployed but ineligible for Medicaid and cannot afford insurance, especially if ineligible for group-based rates. And some number who can afford insurance game the system by going bare while they expect to be healthy and joining the insurance system only later.
      Some of the people in those groups use health services anyway and, when they cannot pay, shift billions of dollars in the cost of unpaid services on to the insurance-financed health care system for others to bear. This economic reality explains why a conservative economist, Mark Pauly, originated the idea of requiring everyone to have insurance — and why some conservatives and Republican politicians endorsed the idea in the 1990s as a modified free-market alternative to some form of universal, government-run health care.
      At the Supreme Court, all four of the conservative justices who participated in the questioning — Clarence Thomas was silent, as is his custom — either ignored or distorted these economic realities. Justice Anthony M. Kennedy asked whether the government could “create commerce” in order to regulate it, missing the point that everyone is always either an actual or a potential participant in the health care market.
      Justice Samuel A. Alito Jr. could see the individual mandate only as a present-tense subsidy from the healthy to the sick. It fell to Justice Ruth Bader Ginsburg to answer: “If you're going to have insurance,” she said, “that's how insurance works.” Later, Justice Sonia Sotomayor had an additional answer. “The subsidizers eventually become the subsidized,” she noted.
      Verrilli was also met with a succession of increasingly improbable hypotheticals. Could the government require everyone to have cell phones to facilitate emergency services, Chief Justice John G. Roberts Jr. asked. What about requiring everyone to have burial insurance, Alito asked. And, of course, Antonin Scalia had to ask the broccoli question: Since everyone eats food, could the government require everyone to buy broccoli? To these gotcha-type questions, Verrilli answered that emergency services are not a market, uncompensated burial expenses are minimal, and broccoli-phobic Americans do not shift billions in food costs on to the broccoli-buying public.
      Scalia was equally obtuse when he challenged Verrilli’s argument that the uninsured had to be brought into the health care market in order to keep insurance premiums down. “You could say that about buying a car,” Scalia said. “If people don't buy cars, the price that those who do buy cars pay will have to be higher.” To the contrary, as anyone who has taken first-year economics knows, the price curve for ordinary products goes down as demand goes down.
      For the opponents of the mandate, former solicitor general Paul Clement insisted that the government could accomplish its objectives by requiring the uninsured to buy insurance at what Clement called “the point of sale” — that is, at the hospital or doctor’s office when medical care is actually needed. Justice Sonia Sotomayor aptly labeled the idea impossible. Aside from the practicalities of filling out insurance forms while in an acute medical condition, the actuarially sound premium for someone with a 100 percent probability of using medical services would be close to the full cost — or, put differently, unaffordable.
      Encouragingly for the administration, both Roberts and Kennedy posed some questions that evidenced a better appreciation of the realities of health-care economics. Roberts pressed Clement for an answer to the government’s point that, in contrast to the market for cars, “everybody” is in the health care market.
      More pointedly, Kennedy asked a final question of the challengers’ other lawyer, Michael Carvin, that appeared to recognize the unique nature of the health-care market. Kennedy wondered aloud whether “the young person who is uninsured is uniquely, proximately, very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries.”
      The court’s decision will not be known until late June, but for now it can be said that economics does not appear to be the conservative bloc’s strongest suit.


  1. If the costs of uncompensated burials are small, so too are the costs of uncompensated health care. The estimates range from 1.6-2.8%, so if "the costs are small" is a valid legal argument (I'd say it is not) then it applies to health care as well.

    I suspect a possibility in the ruling is that the Court says individuals have the same basic rights as do states when relating to the federal government. The 10th amendment seems pretty clear all powers not granted to the federal government lie with the States or the individual, so it seems the same rules can be applied. In that case, we all of the sudden get a whole lot of precedent added (similar to corporations being ruled to have the same rights as people) to protect the rights of the individual. While the ruling would be somewhat disruptive, trying to apply a narrower ruling would be similarly disruptive. And considering the Court has recently wanted to add clarity to unclear areas of precedent, I suspect this will be an appealing solution.

  2. But broccoli-phobic Americans do shift billions in health-care costs on to the broccoli-buying public, when you consider the effect poor diet has on health.

  3. I thought you are obligated to provide treatment to the sick under law. But you are not obligated to buy cars. Am I wrong?

  4. It is NOT true that everyone is in or seeks to enter the health-care market via insurance. The healthy see no need for it. The poor decide they can't afford it. Insurance is supposed to be risk mitigation, not maintenance. I insure my family against catastrophe. But in the current regime, there is moral hazard, in which most of the expenses are shifted to someone else.