Be Careful What you Wish For: The States’ Wrong-headed Attack on Obamacare

On Tuesday 71% of Missouri voters in a referendum elected to opt out of the federal government’s new requirement that all Americans buy healthcare insurance by 2014.  The vote is seen broadly as a measure of unhappiness with the healthcare law hatched by the Democratic Congress and President Obama.

The federal government will surely respond to the Missouri challenge in court, but mostly it is the states that are doing the suing.  Twenty of them are joining together to resist the federal government’s individual-health-insurance mandate.  On Monday the federal government’s attempt to stop the legal challenge in Virginia failed.

The twenty states are arguing that the US Constitution’s Commerce Clause does not permit the federal government to require citizens to buy anything, including health insurance.  The lawsuits constitute a clean, simple and constitutionally plausible line of attack against the widely disliked healthcare law.  But if these lawsuits are successful, delivering public services through relatively efficient market devices will become more difficult, if not impossible.  Instead, a Pyrrhic victory in the Supreme Court may rule out market-based solutions in favor of big-government alternatives to pressing social problems.

For example, people from all across the political spectrum agree that insurance companies should not be able to deny coverage – or make coverage prohibitively expensive – for applicants with pre-existing health conditions.  But as rational actors operating within the market place, insurance companies cherry pick the healthiest people to be their customers.  They don’t want to insure folks who are sick, likely to get sick, and likely to file expensive claims that dig into profits.   If insurance companies are forced to cover people with pre-existing conditions, then they are going to pass that inevitably large expense on to the rest of us who buy insurance.  The system needs the healthiest citizens in the pool to offset the cost of insuring the unhealthy.

However, consumers, like insurance companies, are also rational actors.  Young and healthy individuals are far more likely to risk going without health insurance because they are unlikely to need it.  Temperamentally, young men and women often think of themselves as indestructible.  If they know they can always buy insurance at the normal cost if and when they get sick, then why buy it now?  There can be no ban on denial for pre-existing conditions unless the healthy people with sufficient means are compelled to participate in the system.  Otherwise, unhealthy people will increasingly become the only ones who buy insurance.  Under this scenario, insurance companies will go broke.

If the states challenging the healthcare-insurance mandate win in court, the United States will have to move to a single-payer government-run system, the already over-stressed Medicare system will have to be expanded to cover the uninsured, or we will keep the system as it is, the uninsurable be damned.  Isn’t a mandate that makes the young, healthy and financially secure buy insurance a better choice?

From a public-policy point of view, the mandate is not the real problem with the new healthcare law; rather, it’s the near total lack of cost control as well as the probable degradation in the ultimate overall quality of healthcare that can be expected with a state-centered system.

Policies that require people to buy a service often make more sense than taxing people so that government can provide that same service.  The free marketplace tends to provide higher quality at less cost than does the government.

Republican Congressman Paul Ryan’s Roadmap for America seems to come close to a mandate similar to the one found in Obamacare.  Ryan proposes to move Medicare from a government-run fiscal train wreck to a more efficient market-based system using vouchers and private providers.  Under Ryan’s plan, won’t healthy seniors be forced to purchase private healthcare, or else face a penalty?  If the states win their battle against Obamacare in court, wouldn’t important parts of Ryan’s Roadmap also be ruled unconstitutional?

Herein lies the risk that would come with a Supreme Court victory for the states against the healthcare-insurance mandate.  Even if the mandate part of Obamacare is killed in court, the rest of the legislation is likely to live on, with the program just becoming more expensive.    Insurance companies will be squeezed further, perhaps hastening the coming of a single-payer system.  Finally, many efficient market-based alternatives to government programs will become forever off limits.  Conservatives, be careful what you wish for.