Today's last day of oral argument before the Supreme Court on the Obamacare case involves the question of whether the individual mandate, if found unconstitutional, is "severable" from the statute as a whole. That is, could the Court find the mandate unconstitutional and yet leave the rest of the statute in place, including the guarantees that no insurer could turn down an insured for a pre-existing condition.
The answer ought to be no. You can't take out the individual mandate and leave the rest of Obamacare in place. It just won't work and, in fact, is incoherent without the mandate. The reason this is so can be summed up in two two-word phrases that anyone who wants to understand this issue ought to know.
The first is "adverse selection." This is a basic principle in insurance economics. The idea is that, if given the opportunity, people will choose to buy an insurance product in a way that maximizes their coverage while minimizing the premium they have to pay. In the context of health insurance, this means that sicker people will generally be more likely to want to purchase health insurance, while younger, healthier people are less likely to want to purchase health insurance, with the result that the insurance companies have a harder time turning a profit on the insurance they write.
In the context of Obamacare, what this means is that, if no insurer can turn down an insured because of a pre-existing condition, the incentives for healthy people will be to not buy insurance until they get sick, keep the premiums, and then buy insurance only when they are sick and start racking up medical bills. Obviously an insurance company can't survive under these circumstances. That is why the mandate is necessary, if you're going to require health insurance companies to issue policies to all comers -- you have to have healthy people paying premiums in order to finance health care for the sick people you no longer can turn away.
The second term is "moral hazard." Again, this is an economics term. It refers to the basic fact of human nature that, if you put temptation in front of human beings, they will be tempted to do whatever maximizes their own immediate well-being, even if it means harming the larger society. (By way of example, the structure of pension plans for public employees is fraught with moral hazards such as the ability of public employees to double dip or spike at the end of their careers.)
In the context of Obamacare, what this means is that people would, in fact, decide not to have coverage while they are young and healthy, and then, because insurers can't turn them down because of pre-existing conditions, only get insurance when they get sick. They will know on some level that what they are doing is screwing the rest of society, but they will choose a new car, or a new house, or a vacation, or just plain sloth (I'm looking at you, English grad students) over buying health insurance. Again, the existence of this moral hazard is why you have to have the mandate if you are going to require insurance companies to issue health insurance to all comers without regard to pre-existing conditions.
I think there is no way that the Court can logically find the mandate severable from the rest of Obamacare. That being the case, either the whole thing goes or, if Justice Kennedy thinks the mandate is the price we have to pay for more universal coverage, then the whole thing stays.
I think the whole thing will have to go as a legal matter, because the individual mandate is so obviously a step through the looking glass... if it is upheld, we no longer have a limited federal government of enumerated powers, but instead have a Leviathan that can make us do whatever it thinks is best for us. Buy health insurance! Buy life insurance! Buy a gym membership! Buy a Chevy Volt! Buy diet soda! If the federal government can make you buy health insurance, it can make you buy anything.
More on this in my next post.
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