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Clearly Constitutional: A Primer on the Constitutionality of the Affordable Care Act

Nearly three dozen judges have now considered challenges to the landmark Affordable Care Act and the overwhelming majority of these cases have been dismissed. Nevertheless, a single outlier judge in Virginia has embraced the meritless arguments against the new health care law and another judge in Florida also appears poised to break with the overwhelming consensus of his colleagues.

With only a few exceptions, these lawsuits principally challenge the Affordable Care Act’s minimum coverage provision—the provision requiring most Americans to either carry health insurance or pay slightly more income taxes—falsely arguing that Congress lacks the constitutional authority to enact such a provision. It is true that Congress’s authority is limited to an itemized list of powers contained in the text of the Constitution itself, but while Congress’s powers are not unlimited, they are still quite sweeping. There is no doubt that the Affordable Care Act fits within these enumerated powers in three ways, as this issue brief will demonstrate.

Congress has broad power to regulate the national economy

A provision of the Constitution known as the “commerce clause” gives Congress power to “regulate commerce … among the several states.” And there is a long line of Supreme Court decisions holding that Congress has broad power to enact laws that substantially affect prices, marketplaces, or other economic transactions. Because health care comprises approximately 17 percent of the national economy, it is impossible to argue that a bill regulating the national health care market does not fit within Congress’s power to regulate commerce.

Nevertheless, opponents of the Affordable Care Act claim that a person who does not buy health insurance is not engaged in any economic “activity” and therefore cannot be compelled to perform an undesired act. Even if these opponents were correct that the uninsured are not active participants in the health care market— and they are active, of course, every time they become ill and seek medical care—nothing in the Constitution supports this novel theory. Indeed, this theory appears to have been invented solely for the purpose of this litigation. Congress has enacted countless laws which would be forbidden under this extra-constitutional theory:

  • Guns: President George Washington signed a law that required much of the country to purchase a firearm, ammunition, and other equipment in case they needed to be called up for militia service. Many of the members of Congress who voted for this mandate were members of the Philadelphia Convention that wrote the Constitution.
  • Civil rights: The Civil Rights Act of 1964 compelled business owners to engage in transactions they considered undesirable—hiring and otherwise doing business with African Americans.
  • Insurance mandates: The Affordable Care Act is not even the only federal law requiring someone to carry insurance. The Price-Anderson Act of 1957 requires nuclear power plants to purchase liability insurance and the Flood Disaster Protection Act requires many homeowners to carry flood insurance.
  • Other mandates: Other laws require individuals to perform jury service, file tax returns, and register for selective service.

The minimum coverage provision is the keystone that holds the Affordable Care Act together

The Constitution also gives Congress the power “[t]o make all laws which shall be necessary and proper for carrying into execution” its power to regulate interstate commerce. As Supreme Court Justice Antonin Scalia explains, this means that “where Congress has the authority to enact a regulation of interstate commerce, it possesses every power needed to make that regulation effective.”

The act eliminates one of the insurance industry’s most abusive practices—denying coverage to patients with pre-existing conditions. This ban cannot function if patients are free to enter and exit the insurance market at will. If patients can wait until they get sick to buy insurance, they will drain all the money out of an insurance plan that they have not previously paid into, leaving nothing left for the rest of the plan’s consumers.

Seven states enacted a pre-existing conditions law without also passing an insurance coverage requirement, and all seven states saw health insurance premiums spiral out of control. In some of these states, the individual insurance market collapsed.There is a way out of this trap, however. Massachusetts enacted a minimum coverage provision in 2006 to go along with its pre-existing conditions provision and the results were both striking and immediate. Massachusetts’ premiums rapidly dropped by 40 percent.

In other words, because the only way to make the pre-existing conditions law effective is to also require individuals to carry insurance, that requirement easily passes Scalia’s test.

The link between the minimum coverage provision and the Affordable Care Act’s insurance regulations also sets this law aside from other hypothetical laws requiring individuals to purchase other goods or services. The national market for vegetables will not collapse if Congress does not require people to purchase broccoli, nor will Americans cease to be able to obtain automobiles absent a law requiring the purchase of cars from General Motors. Accordingly, a court decision upholding the Affordable Care Act would not provide a precedent enabling Congress to compel all Americans to purchase broccoli or cars, despite the law’s opponents’ claims to the contrary.

Congress has broad leeway in how it raises money

Congress also has the authority to “lay and collect taxes” under the Constitution. This power to tax also supports the minimum coverage provision, which works by requiring individuals who do not carry health insurance to pay slightly more income taxes. Taxpayers who refuse insurance must pay more in taxes while those who do carry insurance are exempt from this new tax. For this reason, the law is no different than dozens of longstanding tax exemptions, including the mortgage interest tax deduction, which allows people who take out home mortgages to pay lower taxes than people who do not.

Opponents of the Affordable Care Act respond that the minimum coverage provision somehow ceases to be a tax because the new law does not use the word “tax” to describe it, but this distinction is utterly meaningless. Nothing in the Constitution requires Congress to use certain magic words to invoke its enumerated powers. And no precedent exists suggesting that a fully valid law somehow ceases to be constitutional because Congress gave it the wrong name.

By Ian Millhiser, Policy Analyst and Blogger for the Center for American Progress where his work focuses on the Constitution and the Judiciary-January 18, 2011

January 22, 2011 Posted by | Affordable Care Act, Constitution, Individual Mandate | , , , , , , , , , , , | 1 Comment

The Importance of the Individual Mandate — Evidence from Massachusetts

The most contentious aspect of the Patient Protection and Affordable Care Act (ACA) is the individual mandate requiring that most documented U.S. residents obtain health insurance or pay a tax penalty. Many experts have long advocated a mandate as a central pillar of private-sector–based health care reform. Others, however, have argued that a mandate is not necessary for successful reform.

Proponents of the mandate argue that it is necessary to reduce adverse selection in a reformed nongroup insurance market. Adverse selection occurs when a larger fraction of relatively unhealthy people than healthy people purchase health insurance. It is analogous to the purchase of car insurance only by high-risk drivers (or worse, only by drivers who have just had an accident). However, one of the most popular aspects of the ACA may encourage such adverse selection, since the law prohibits health insurers from discriminating against applicants on the basis of health, either by charging higher premiums for sick people or by excluding preexisting conditions from coverage. Absent other reforms, such regulations would theoretically increase premiums for healthy people and lead them to exit the nongroup insurance market, which would cause premiums to rise even more. Informal support for this hypothesis comes from the fact that the five U.S. states with such regulations (known as “community rating”) are among the states with the highest nongroup insurance premiums.1

Opponents of the mandate counter that community rating may work as long as there are large subsidies that attract healthier enrollees to the insurance pool. Such subsidies include the tax credits that the ACA authorizes for people with incomes between 133 and 400% of the federal poverty level. (The federal poverty level for a family of four is about $22,000 per year.) States with community rating do not generally offer such large subsidies, so we can’t use their experience to predict the effects of national reform minus the mandate. But understanding whether the mandate matters, even with large subsidies in place, is critical for assessing its role in reform.

The early experience with health care reform efforts in Massachusetts may offer some lessons. Massachusetts made heavily subsidized insurance available to residents with incomes below 300% of the federal poverty level for nearly a year before mandating insurance coverage. By examining the characteristics of the subsidized insurance pool before and after the mandate went into effect, we assessed how much of an additive effect the mandate had over that of simply offering subsidized, community-rated insurance.

As part of the Massachusetts reform, the Commonwealth Care program provided free insurance to people with incomes below the federal poverty level from October 2006 onward and for those with incomes below 150% of the federal poverty level from July 2007 onward. In both cases, the state automatically enrolled people who were eligible for free coverage; people in higher income groups could enroll but had to pay premiums. We therefore examined the behavior of Massachusetts residents with incomes between 150 and 300% of the poverty level, who were eligible for subsidies and had to pay insurance premiums that were meaningful but much smaller than those mandated by the ACA.

Using claims data from the Massachusetts Commonwealth Connector, we measured the health mix of the population enrolling in Commonwealth Care according to average age, average monthly health care expenditures, and the proportion of enrollees with a chronic illness. We identified enrollees as having a chronic illness if within the first 12 months after enrollment they had an office visit at which a diagnosis of hypertension, high cholesterol level, diabetes, asthma, arthritis, an affective disorder, or gastritis was recorded.2 Relying on only the first 12 months of claims ensured that our estimates of rates of chronic illness for earlier enrollees, whose claims data covered a longer period, were similar to estimates for later enrollees.

We examined these data for the period from March 2007 (the date of the first available reliable information on people with incomes in the relevant range) through June 2008 (the last month for which we could calculate our 12-month measure of chronic illness). In each month, we measured the health of the enrollees who joined the program.

We assessed the characteristics of these enrollees before, during, and after the phasing in of the mandate. Technically, the mandate went into effect on July 1, 2007. The Connector began a massive public outreach campaign in May 2007, and the number of hits on its Web site peaked around July 1. The penalty, however, was assessed on the basis of insurance coverage as of December 31, 2007. That is, people who purchased insurance in November that began in December did not have to pay the penalty, even if they had been uninsured beyond July 1. The penalty for 2007 was the loss of the individual state income tax exemption, a relatively modest $219. It increased to about $900 in 2008 and was prorated on the basis of the number of months of coverage during the year.

Characteristics of New Enrollees in Commonwealth Care, According to Enrollment Period

Number of Enrollees in Commonwealth Care, According to Chronic-Illness Status

 

                         
We considered three periods: before July 1, 2007; the phase-in period from July through November 2007; and the “fully effective” period from December 2007 through mid-2008. The table shows the average age, rate of chronic illness, and average monthly spending per member for new enrollees in each of the three periods. In each period, the numbers of enrollees with chronic illness were higher at the beginning of the period than at the end of the period. The enrollees who signed up for Commonwealth Care before the mandate went into effect were nearly 4 years older, were almost 50% more likely to be chronically ill, and had about 45% higher health care costs than those who signed up once the program was fully effective.

 

It seems possible that even without the mandate, people with the highest health care costs would enroll first and healthier people would enroll over time. But data on the health status of new enrollees suggest that that was not the case (see graph). At the beginning of the mandate’s phase-in in mid-2007, there was a greater increase in the number of healthy enrollees than in the number of enrollees with chronic illness. When the mandate became fully effective at the end of 2007, there was an enormous increase in the number of healthy enrollees and a far smaller bump in the enrollment of people with chronic illness. The gap then shrank to premandate levels as the remaining uninsured residents complied with the mandate, but clearly the mandate brought many more healthy people than nonhealthy ones into the risk pool. The large jump in healthy enrollees that occurred when the program became fully effective suggests that enrollment by the healthy was not simply slower than enrollment by the unhealthy, but rather that the mandate had a causal role in improving risk selection.

Whether the Massachusetts experience can be generalized to the rest of the country depends in part on the relative sizes of the subsidies provided: the higher the subsidies, the smaller the role for an individual mandate. Under Commonwealth Care, adults with incomes between 150 and 200% of the poverty level were asked to contribute $35 per month. Under the ACA, their monthly contribution would be $51 to $107. At 200 to 250% of the poverty level, the monthly contributions are $70 in Massachusetts and $107 to $171 under the ACA; at 250 to 300% of the poverty level, the contributions are $105 in Massachusetts and $171 to $242 under the ACA. The larger subsidies in Massachusetts would be expected to have a greater effect in inducing healthy people to obtain insurance than the ACA’s smaller subsidies — which suggests that mandating coverage might well play an even larger role in encouraging the healthy to participate in health insurance markets nationally than it has in Massachusetts.

By: Amitabh Chandra, Ph.D., Jonathan Gruber, Ph.D., and Robin McKnight, Ph.D.-New England Journal of Medicine | This article (10.1056/NEJMp1013067) was published on January 12, 2011, at NEJM.org.

Source Information

From the John F. Kennedy School of Government, Harvard University (A.C.), and the Massachusetts Institute of Technology (J.G.) — both in Cambridge, MA; and Wellesley College, Wellesley, MA (R.M.).

References

  1. Rosenbaum S, Gruber J. Buying health care, the individual mandate, and the Constitution. N Engl J Med 2010;363:401-403Full Text | Web of Science | Medline
  2. Goldman DP, Joyce GF, Escarce JJ, et al. Pharmacy benefits and the use of drugs by the chronically ill. JAMA 2004;291:2344-2350CrossRef | Web of Science | Medline

January 22, 2011 Posted by | Affordable Care Act, Individual Mandate | , , , , , , , , , , , , , | 1 Comment

   

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