Free Markets, Free People

personal bankruptcies


Judge Kessler: Mandate Constitutional Because of “Free Riders”

There is a new opinion from U.S. District (DC) Judge Kessler ruling that the individual mandate imposed by ObamaCare is constitutional. The primary importance of the ruling is that it is squarely at odds with the Judge Vinson opinion from the District of Florida on one key issue: that deciding not to purchase something is an “activity” that can be regulated under the Commerce Clause. I’m still going through it, and will have more to say, but a few things really leaped out at me.

(1) Kessler places a lot of emphasis on the “free riders” who consume medical services but don’t pay for them. According to the judge, these free rider problems are illuminated by the congressional findings found in the Affordable Care Act (at pp. 39-40):

The findings on this subject could not be clearer: the great majority of the millions of Americans who remain uninsured consume medical services they cannot pay for, often resulting in personal bankruptcy. In fact, the ACA’s findings state that “62% of all personal bankruptcies are caused in part by medical expenses.” ACA § 1501(a)(2)(G), as amended by § 10106. Of even greater significance to the national economy is the fact that these uninsured individuals are, in fact, shifting the uncompensated costs of those services–which totaled $43 billion in 2008–onto other health care market participants, as well as federal and state governments and American taxpayers. See ACA §§ 1501(a)(2)(F), (G),as amended by § 10106; Thomas More Law Ctr., 720 F.Supp.2d at 894.

Because of this cost-shifting effect, the individual decision to forgo health insurance, when considered in the aggregate, leads to substantially higher insurance premiums for those other individuals who do obtain coverage. According to Congress, the uncompensated costs of caring for the uninsured are passed on by health care providers to private insurers, which in turn pass on the cost to purchasers of health insurance. “This cost shifting increases family premiums by on average over $1,000 a year.” ACA §1501(a)(2)(F), as amended by § 10106. Thus, the aggregate effect on interstate commerce of the decisions of individuals to forgo insurance is very substantial.

There are many problems with these “findings” chief among which is an innumeracy problem. According to the first two quoted sentences, we are supposed to infer that 62% of all personal bankruptcies are made up of those “who remain uninsured” and “consume medical services they cannot pay for.” Indeed, according to Kessler’s understanding of the findings, the foregoing population is the “great majority of Americans who remain uninsured.” The only problem is, even if we assume that the 62% statistic is correct (which is a stretch), the number of personal bankruptcies every year does not even reach 2 million. Indeed, 2009 saw personal bankruptcies soar by 32% … to 1.41 million. Sixty-two percent of that is just 874,200, which is far, far fewer people than the “great majority of the millions of Americans who remain uninsured.”

(2) Another glaring issue is that the “cost-shifting” complained of is entirely the fault of the federal government, not “free riders,” thanks to Congress passing EMTALA in 1986, pursuant to which practically every hospital in the nation was forced to accept any and every patient who requested “emergency services.” In short, Congress created the free riders with this legislation.

Now let’s follow the logic here: (a) hospitals refuse to treat patients who can’t afford their medical services, therefore Congress must force hospitals to treat regardless of ability to pay (i.e. costs shifted to hospitals); (b) Patients who can’t afford the medical services, but who hospitals must treat, raise costs of medical services, which are mostly paid by insurers who raise their rates and pass them on to paying patients (i.e costs shifted to service-providers, then insurers, then paying patients); (c) insurance costs are entirely too high because uninsured patients, who can’t afford insurance or medical services, but whom hospitals must treat anyway, which drives up the costs of services and therefore the costs of insurance, and therefore Congress must force everyone to buy insurance (i.e. costs shifted from paying patients to those who can’t afford services or insurance); (d) because some people can’t afford insurance, they must be subsidized in their mandated purchase of insurance by taxpayers (i.e. costs re-shifted back to paying patients).

Putting it all together, according to Kessler’s opinion, Congress must be able to force individuals to purchase insurance because individuals who can’t afford insurance, but still consume health services (thanks to Congress), are causing the health insurance market to become distorted. (Oh, and by the way, those who can afford insurance are going to have to subsidize those who can’t and are therefore responsible for this whole mess in the first place.) Does that make any sense?

(3) The one other thing that really struck me as worrisome is Kessler’s emphasis on the infamous Wickard v. Filburn case (at p. 40):

In this case, the link [between the activity and the market being regulated] is strikingly similar to that described in Wickard: individuals are actively choosing to remain outside of a market for a particular commodity, and, as a result, Congress’s efforts to stabilize prices for that commodity are thwarted. As Wickard demonstrates, the effects of such market-distorting behavior are sufficiently related to interstate commerce to justify Congress’s efforts to stabilize the price of a commodity through its Commerce Clause power.

This is the reasoning underpinning Kessler’s holding (at p. 38) that “[b]oth the decision to purchase health insurance and its flip side–the decision not to purchase health insurance–therefore relate to the consumption of a commodity: a health insurance policy.” In this view, any decision made about an arguably economic subject, even the decision not to participate in a market concerning that economic subject, is subject to regulation by Congress.

Accordingly, should Congress decide to regulate the market for U.S automobiles, your decision to not purchase a vehicle can be regulated and even penalized by federal law. In fact, if Kessler’s view of the Constitution is correct, then Congress could require that you purchase a GM or Chrysler vehicle in order to stabilize the price of that commodity. Or perhaps, because of free rider problems, you can be penalized for choosing not to have children who would grow up, enter the labor force and pay the Social Security and Medicare taxes necessary to support you in your older years. If Kessler is correct, then the only limit on Congressional power is the inability to conjure up a market to be regulated, since any decision (participate/not participate) will have a substantial effect on that market when considered in the aggregate.

I would submit that this cannot be the correct view. The Commerce Clause power has already been distended far beyond what was intended when it written. If the Supreme Court adopts this decision, or something similar, the Congress would effectively have carte blanche to regulate whatever it desires.

In any event, those three things stood out to me. I’ll try to have some more on the opinion itself by tonight.

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