Friday, December 17, 2010

Virginia v. Sebelius: The Aftermath

Cross-posted from The Agenda on National Review Online.

If you follow health policy enough to read this blog, you know that the much-anticipated Virginia decision on the constitutionality of Obamacare’s individual mandate came down last week.

In that decision, Judge Henry Hudson, of the U.S. District Court for the Eastern District of Virginia, ruled that the individual mandate was unconstitutional. He also overturned any part of PPACA that specifically referenced the individual mandate, while upholding the rest of the law. Unsurprisingly, Hudson cited Free Enterprise Fund v. Public Company Accounting Oversight Board as part of his justification for partially repealing the law, despite the lack of a “severability clause” that would have explicitly allowed the courts to partially overturn the law.

There has been plenty of intelligent commentary on the decision. Allow me to lead you to some of the best, intercalated amongst my own thoughts.

1. How sound was Hudson’s ruling, and how likely is it to be upheld by the Supreme Court?

In reading the opinion, I was struck by its carefulness. Hudson was rather precise in attempting to draw out how PPACA extended congressional powers farther than they had ever been extended before. There are two key Supreme Court cases that dramatically broadened the Constitutional provision that allows Congress to regulate “interstate commerce”: Wickard v. Filburn, a 1942 case in which the Supreme Court absurdly ruled that a man growing wheat to feed his chickens was conducting interstate commerce, even though he had no intention to sell it; and Gonzales v. Raich, a similarly suspect 2005 case in which the Court agreed that the Commerce Clause allowed Congress to regulate the ability of a man to grow marijuana in his own home for his own use.

Hudson argued in his ruling that PPACA goes farther than the laws in question in Wickard and Gonzales, by penalizing inactivity as opposed to activity. In other words, he increased the likelihood that his ruling would be upheld upon appeal by not forcing the Supreme Court to overturn either of these two prior judgments. What the Supreme Court actually ends up doing will depend entirely upon whether or not Anthony Kennedy agrees with Henry Hudson. I would say the odds are 60-40 in Hudson’s favor.

Over at the Volokh Conspiracy, the best Constitutional law blog out there, many contributors appear to agree that the weakest part of Hudson’s ruling is that it does not do a sufficient job of explaining why the individual mandate can’t be justified by the Constitution’s “Necessary and Proper” clause, which grants Congress the power to “make all Laws which shall be necessary for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.” Here’s Ilya Somin:
The weakest part of Judge Hudson’s opinion is his analysis of the government’s Necessary and Proper Clause argument, which merely claims that the Necessary and Proper Clause only authorizes legislation that is linked to an enumerated power, but does not really explain why the mandate is not. In my view, a far better answer to the government’s argument is that the mandate isn’t “proper” even if it is “necessary” and that it runs afoul of the five part test recently outlined by the Supreme Court in United States v. Comstock. I discussed both points in some detail in the amicus brief (pp. 25–30), and in a shorter form here. In fairness to the judge, his neglect of this point may have been due to the fact that the federal government gave it short shrift in their brief (allocating less than two pages to it buried in the middle of a fifty page brief). While co-blogger Orin Kerr and I believe that this is the government’s strongest argument, few other commentators seem to agree. In today’s New York Times Room for Debate forum on Hudson’s opinion, none of the contributors (including four prominent scholars who support the individual mandate) even mentioned this issue. Still, the opinion can and should have addressed this point much better.
At NRO’s Bench Memos blog, Carrie Severino agrees with this assessment.

2. What other aspects of PPACA were overturned with this decision?

Here is what Judge Hudson had to say about that:
It would be virtually impossible within the present record to determine whether Congress would have passed this bill, encompassing a wide variety of topics related and unrelated to health care, without Section 1501 [the individual mandate]. Even then, the Court’s conclusions would be speculative at best. Moreover, without the benefit of extensive expert testimony and significant supplementation of the record, this Court cannot determine what, if any, portion of the bill would not be able to survive independently.
Therefore, this Court will hew closely to the time-honored rule to sever with circumspection, severing any “problematic portions while leaving the remainder intact.” Ayotte, 546 U.S. at 329, 126 S. Ct. at 967. Accordingly, the Court will sever only Section 1501 and directly-dependent provisions which make specific references to Section 1501.
Hudson doesn’t specify exactly which provisions he considers to be directly dependent upon Section 1501. However, from a policy standpoint, it is clear that many of PPACA’s provisions, such as the requirement that insurers cover people with preexisting conditions (guaranteed issue), the constraints upon insurers to charge different rates based on age (community rating). Indeed, earlier this month, the White House issued a fact sheet that conceded as much:
If the constitutional challenge to the Affordable Care Act’s individual responsibility requirement ultimately prevails, it would mean that provisions preventing health insurance companies from discriminating against people with pre-existing conditions would also be invalidated by the court because the two are inseparably linked. If insurance companies are required to cover those with pre-existing conditions, who are potentially more expensive to cover, without requiring everyone—both sick and healthy people—to have insurance, premiums will increase rapidly. Similarly, other provisions – including banning insurers from discriminating based on health status, age and gender – would also fall.
Over at, Peter Suderman points out that the whole architecture of PPACA hinged on the individual mandate. To make the argument explicit: In order to require insurers to cover everyone, you need an individual mandate, because the insurer requirements will otherwise lead to an adverse selection death spiral and incentivize young, healthy people to opt out of the system. If you are to have an individual mandate, you have to subsidize insurance for lower-income people, because it’s unfair to force people to buy a product they can’t afford. The massive costs of these subsidies, as reflected in the expansion of Medicaid and the creation of the state-based exchanges, was paid for by various tax increases and spending cuts (mostly to Medicare Advantage).

Hence, there is a case to be made that, if the individual mandate is unconstitutional, so is the lion’s share of PPACA. I’m not surprised that Judge Hudson declined to take on that question, however. Ultimately, if Hudson’s ruling is upheld, it will be up to the Supreme Court to sort out this question. If the Supremes rule as narrowly as Hudson has, it will be up to Congress to clean up the mess, which could most simply be achieved by repealing the entire law.

3. Does repealing the individual mandate increase or decrease the likelihood that PPACA is ultimately repealed?

Some have argued that overturning the individual mandate rids PPACA of its least popular provision, and thereby makes it less politically likely that the whole law is repealed. I disagree. As any health wonk will tell you, without an individual mandate, PPACA will lead to the collapse of the private insurance market, unless the courts also strike down guaranteed issue and other insurance regulations.

Furthermore, overturning the individual mandate enhances the moral prestige of repealing PPACA wholesale. It bears repeating that most progressives dismissed the Constitutional arguments against Obamacare until this ruling (and many still do). It will be more difficult to do so now.

4. Are conservatives hypocrites? From a policy standpoint, is the individual mandate a good or bad thing?

Steve Benen and others have rightly noted that some conservatives favored an individual mandate when Mitt Romney enacted it, only to have shifted their point of view during the Obamacare debate. The allegation that most conservatives backed the mandate in 2006, however, is inaccurate. The Wall Street Journal launched a non-stop campaign against the RomneyCare mandate. National Review’s Ramesh Ponnuru observed at the time that “the feature of the Commonwealth’s plan that is most controversial on the Right…[is] the mandate that all individuals purchase health insurance.”

It is true, however, that when Mitt Romney installed the individual mandate in Massachusetts, he did so with the backing of the Heritage Foundation and others. Benen alleges that their change of heart is “about cheap politics.” One can never exclude cheapness from politics, but pro-mandate conservatives had plenty of legitimate reasons for changing their minds. One, addressed above, is the Constitutional difference between state-level mandates and federal ones. From a policy point of view, however, the more important factor was the experience of seeing the mandate in action in Massachusetts.

The idea behind RomneyCare was to limit the impact of free-riders, who take advantage of a federal law requiring hospital emergency rooms to treat patients regardless of their ability to pay. If you limit the free-riders by forcing them to pay into the system, it was thought, you lower costs for everyone.

It didn’t turn out that way. Costs kept going up in Massachusetts, for several reasons. John Goodman does an excellent job of summarizing them here and here. For one, as Goodman writes,
On the average, people without health insurance consume only about half as much health care as everyone else — after adjusting for other characteristics; and of the amount of care they consume, they pay for about half from their own resources. So, roughly speaking, the “free ride” for the average uninsured person is equal to about one-fourth of what everyone else spends on health care.
In other words, the more insurance that people have, the more people are incentivized to increase their health spending, leading to increased, not decreased, costs.

Secondly, the mandate is collected by the central government, while care is delivered locally: so there is no direct connection between those who are paying the penalty, and how that care is paid for by hospitals and governments.

Third, we punish people for buying insurance outside of the employer-sponsored system using the tax code, disincentivizing those who need or want to purchase insurance outside of that system.

Progressives who think that the conservative change of heart on the mandate is purely political would be wise to consider the above policy points.

I have long advocated the Swiss system, because the Swiss have achieved universal coverage while spending a miniscule 3% of GDP on health insurance subsidies. Given what I’ve written above, however, it cannot be ignored that the Swiss system does have an individual mandate, guaranteed issue, and community rating. It’s important to remember that, in Switzerland, these requirements exist within a purely private insurance market, in which there is no government-run insurer like Medicare or Medicaid.

It is my view that the Swiss system could be adapted for American purposes by replacing the mandate with a German-style limited enrollment period, as Paul Starr has advocated at The American Prospect. The limited enrollment approach requires individuals to buy insurance, say, in the month of January during a leap year: if an individual chooses to opt out of insurance at that time, he cannot purchase insurance again until January of the following leap year.

This way, individuals are free to opt out of the system, but prevented from taking advantage of insurance rules regarding pre-existing conditions. Such an approach is more consistent with American customs of liberty and choice than is the individual mandate. Here’s hoping that Anthony Kennedy agrees with me.


  1. "Progressives who think that the conservative change of heart on the mandate is purely political would be wise to consider the above policy points."

    You neglect the 1993 Republican plan offered in opposition to the Clinton plan.

    I could live with the Swiss system. Starr's idea is worth a try. I believe it is what Obama's advisers had wanted during the campaign when he opposed the individual mandate. I suspect it would work better with the mandate, so we are sacrificing better policy to appease ideology, but you have to do something to get legislation passed.


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