Enter the “incidental” health economist Austin Frakt in a recent JAMA Forum article. He argues that the mandate penalty may be large enough to do its intended job, based on the experience in Massachusetts (the proverbial “n of 1″). His actual text suggests that “it’s not so clear” that the mandate is too weak, but that’s close enough for pro-government work. Despite cautioning that Massachusetts differs from the rest of the country in many ways, the usually careful Frakt still concludes that “all the best evidence and logic we have point in the same direction” and indicate that the ACA’s mandate penalties will be adequate.

Wait! There’s a challenge flag on the field, and a call for replay review of the game tape. Frakt cites two studies in support of the mandate’s penalty levels in Massachusetts. First up, a January 2011 New England Journal of Medicine Perspective by Amitabh Chandra, Jonathan Gruber, and Robin McKnight is recycled for evidence that the Bay State’s version of an individual mandate motivated three times as many health individuals to enroll in health insurance for every individual with a chronic illness who did so. What’s omitted from Frakt’s JAMA Forum argument is another factor noted by Chandra, Gruber, and McKnight. Generalizing the Massachusetts experience to the rest of the country “depends in part on the relative sizes of the subsidies provided” for mandated coverage. Higher subsidies mean less of a role for the individual mandate.  And out-of-pocket premium costs for subsidized adults between 150 percent and 300 percent of the federal poverty level will be noticeably higher under the ACA than was the case with larger Massachusetts coverage subsidies. The authors’ suggestion that mandating coverage might play an even larger role in encouraging the healthy to participate in health insurance markets nationally than it has in Massachusetts represents more of a “hope” than a “finding,” and it fails to speak to the particular effectiveness of the size of the ACA penalties or the law’s enforcement policies.

Secret agent #86 Maxwell Smart used to say, “Would you believe…?” when retreating to a lesser, backup argument. Similarly, Frakt cites another study coauthored last year by Martin Hackmann, Jonathan Kolstad, and Amanda Kowalski for an American Economic Association annual meeting. It found that Massachusetts’ mandate and penalties reduced average premiums from what they would have been without them, thereby curbing adverse selection. However, a closer look at the study suggests some quick jumps across categories and wider holes through which more ACA mandate hopes than robust evidence are driven around in circles.

The broad empirical finding of the Hackmann, Kolstad, and Kowalski paper is that increased coverage due to the reform in Massachusetts lowered annual average hospital costs for the insured (and pre-loaded average premiums) by about $124 between 2004-2005 and 2008-2009. Those annual “savings” were about 3 percent of the 2006 average premium for employer-sponsored health insurance.

The study also notes that between 2006 and 2009, premiums in employer plans in Massachusetts followed the national trend (no numbers provided), but premiums in the state’s non-group market decreased by 20 percent (citing a 2011 Jonathan Gruber study). All of this is supposed to be “comparable” to the 3 percent overall decrease in premiums observed by Hackmann, Kolstad, and Kowalski.

The latter authors’ acknowledge that Massachusetts had community rating regulations that limited the ability of insurers to price based on health status in the non-group market – both before and after the 2006 reform. A recipe for greater asymmetric information and adverse selection in a more voluntary pre-2006 market? Of course. Unlike most of the rest of the country?  Uh huh.

Fear not, assure the three study authors. Their findings are “broadly consistent” with the CBO “predictions” for national reform. And why not? Given that those predictions regarding mandate effects were largely based on limited evidence from Massachusetts, with an ever-helpful boost from Obama administration consultant and Massachusetts reform plan modeler Jonathan Gruber. (Will the policy research circle be unbroken?) Moreover, Hackmann, Kolstad, and Kowalski conclude that community rating in the non-group market does not drive their results, given that only 5 percent of the insured in Massachusetts were in the non-group market before reform and this share was unchanged after reform.

Wait, there are several more penalty flags on the play, and not even Chief Justice Roberts can call them mandatory “taxes!” First, there’s no mention that Massachusetts merged its non-group market with its small-group market, as part of the 2006 reform (to make premiums in the former look lower). Second, how does a 20 percent premium reduction in 5 percent of the overall Massachusetts market produce an 3 percent decrease in overall premiums from 2006 to 2009 (the study language is unclear as to whether this is an annual rate of decrease or an aggregate one), unless employer plan premiums also decreased more than appears to be reported.

And, if you’re keeping score at home, note that Frakt’s Forum article asserts that the premium increase in pre-reform Massachusetts – due to healthy individuals not purchasing insurance there – was 0.5 percent to 1.5 percent; an annual premium increase of $25 to $75. Those adverse selection effects appear to be anywhere from 20 percent to 60 percent of the size of their mirror-image “savings” found in the Hackmann, Kolstad, and Kowalski study of post-reform Massachusetts.  But who’s counting anyway, when everyone agrees on the beneficial effects of the individual mandate? Frakt blithely observes that the pre-reform premium increases due to adverse selection were “far too low to have a major effect on the market” and that insurers can pass that level of premium increase on to consumers without many of them dropping coverage. Funny how that doesn’t work the same in the opposite direction regarding the touted post-reform savings? Must be a case of politically asymmetrical evidence.

The study so loosely cited by Frakt boldly concludes that there was adverse selection into health insurance in Massachusetts before the reform. (Ya think?) It does finally concede that “our simple sign test does not quantify the magnitude of the welfare cost of adverse selection.”

What’s the larger point here? Austin Frakt usually does careful work in a fair-minded manner. Even within the JAMA Forum article, he notes that Massachusetts differs from the rest of the country in many ways, so one should be careful about making generalizations. And his work on the relative size of mandate penalties under the ACA versus Massachusetts state law is much better documented. In another posting on The Incidental Economist blog in March 2010, Frakt even acknowledged the limitations of short titles that suggest more than the body of the post supports (for example, how a six-month pre-existing condition exclusion period in Massachusetts limits its promise of guaranteed issue coverage; unlike the ACA).

But there are so many important political conclusions to reach these days, and so little time! The temptation is to push those points just a little too far, when it seems to be for a good cause (and all your friends agree with you already).  The broader caution to a reader is to review for yourself the evidence and hyperlinks to studies by other researchers who share the same policy assumptions as an author (but bring little more independent, dispositive evidence to the table). To be fair, a number of the top economic journals have recently cut back the maximum page lengths for submitted articles, so it’s possible that more extensive work product, supportive evidence, and acknowledgment of  study limits don’t appear fully in what’s published these days.

Then again, a more effective shortcut might be to just take another round of too-conclusory headlines on the individual mandate with the warning:

Whatever happened in Massachusetts stays in Massachusetts, for now

(see, e.g. the Mitt Romney presidential campaign….)

States’ other choices include cooperating with the federal government in implementing an exchange or leaving exchange operations entirely to Washington. But the basic decision comes down to: In or Out? Supine or Prone?

Since enactment of the Affordable Care Act (ACA) in 2010, many state officials have balked at participating in its model for “state-run” exchanges, which appeared to resemble part of a top-down bureaucratic plan to take more control of state insurance markets, rather than a less centralized, market-driven alternative. Several dozen state governors and state legislatures either opposed outright the creation of ACA-compliant exchanges or urged a cautious, go-slow approach to further implementation until more details were provided (or the Supreme Court decided to overturn the health law as unconstitutional). At this point, it still appears that a large majority of states will not meet the ACA’s initial deadline of January 1, 2013.

The version of exchanges envisioned in the ACA is a classic example of a limited, but potentially good, idea mutating into a politically-driven gateway to overregulation, income redistribution, and increased dependence on Washington. Health insurance exchanges are not new ideas. But they find only soft support in concept and garner little political consensus in practice.

The policy parameters involving the role and power of an insurance exchange include whether it is voluntary or mandatory. Does it have an exclusive franchise, or must it compete for customers? Over what geographic territory and for which market segments does it operate? Does it exercise substantial market power as a purchaser or even more political power as a regulator? Does it try to pool similar risks or cross-subsidize very different ones? Does it limit or expand choices of carriers, plans, and benefits? The more you want to try to do, the more regulatory complexity you have.

The ACA designed its version of state exchanges to play a much greater, and more controversial, role. The real goal appears to be to construct a roach motel of centralized regulation, where private plans and their enrollees might check in but are not allowed to check out.

At this point, developing functional health benefits exchanges under the ACA faces major obstacles:

1. Most states will either refuse to set up their own exchanges or prove unable to do so for political or technical reasons.

2. The administrative challenges in orchestrating necessary data streams from multiple sources (to determine applicants’ eligibility for federal subsidies), creating essentially “new” insurance markets, and handling a potential surge in demand for such coverage remain daunting and unprecedented.

3. Serious legal questions about the actual statutory authority of federally run exchanges to administer premium subsidies remain unresolved, and they are likely to dilute the power of any arguments that states must set up their own exchanges to avoid losing control over a federally run exchange in their state.

If state governors opposing Obamacare are not ready to run a white flag up the pole after last week’s election results and sign up as junior partners, what should they do? Option one is to simply stand back and hope that federally run exchanges will be unsuccessful and collapse for a combination of political, legal, and administrative reasons. This passive-aggressive stance is most politically appealing in states where opposition to Obamacare continues to run strong. It allows Republican policymakers to default to modified “Pottery Barn Rules” — “If you break it, you own it” (and we won’t fix it for you). They also can insist that HHS failed to provide them enough information and guidance on how state exchanges must operate, while reserving the option to complain about too much federal micromanagement if and when HHS actually does so.

Of course, this arms-length strategy fails to address what other types of health insurance reforms might still be needed within states, particularly if and when the ACA’s edifice wrecks prematurely. Will Obamacare opponents finally start thinking about tomorrow, on the other side of today’s fiscal cliffs and electoral setbacks?

The less-likely option two might involve approving different versions of their own state-based “exchanges” that would operate under more market-friendly rules not likely to comply with the Obama administration’s regulatory guidance. They would serve more as market facilitators of new coverage options (for state residents seeking individual coverage and for small businesses looking for alternatives to traditional group coverage), rather than as administrators of an expanded quasi-public insurance program destined to resemble Medicaid. Flexibility, choice, and open competition would be more important tools than standardization, selective contracting, and compulsion. Such exchange-like mechanisms would involve willing consumers, private providers, and employer sponsors as partners rather than as subjects.

State-based alternatives to ACA exchanges would rely much more on developing and disseminating consumer-empowering, impartial information about coverage options, rather than on enacting and enforcing choice-limiting regulation. They would maintain the difference between providing a single shopping point for convenience and requiring an exclusive destination for political control.

Nevertheless, political suspicion remains widespread in many states that the temptation for regulatory overreach in exchange-like mechanisms cannot be kept in check. Hence, any government-supported vehicles to improve connections to coverage and taxpayer subsidies for individuals and small firms should be provided only as a “competitive” option within the larger insurance marketplace. They should not preempt further growth of nonexclusive private exchanges as either competitors or replacements for state-sponsored ones. If any new mechanisms can serve a useful role and provide competitive advantages, consumers will choose voluntarily to purchase insurance through them. Willing buyers, rather than political brokers, can redesign their local insurance markets by voting with their own money.

In the meantime, intermediate option three also remains for states. It would resist implementation of federally facilitated exchanges while improving their bargaining leverage to insist on pro-competitive state-designed alternatives. States should consider intervening as co-plaintiffs in the lawsuit brought by the State of Oklahoma that challenges the validity of an IRS rule that allows federal exchanges to distribute premium assistance tax credits to its future enrollees. The conflict between the authority granted to federal exchanges under the statutory text of the ACA and the power asserted under the IRS rule adopted last May is significant and worthy of vigorous examination in court. A federal government response to the amended complaint is due on November 19. If the IRS rule is overturned, states regain the high ground and it’s a whole new ballgame for rewriting the federal-state balance of power under the ACA.

Tom Miller  writes about the uncertain future of federal health exchanges in “Firing Warning Shots with Blank Bullets.” as well as in “When Obamacare Fails: The Playbook for Market-Based Reform” (forthcoming).

The Obama playbook and debating points for health policy are written. Much of it falls under the fiction (either mystery or horror) category.

Thus far, Romney’s campaign has neither targeted the political vulnerabilities of Obamacare to any great extent, nor framed a concise alternative vision of health reform.

Don’t expect any remarkable transformations tomorrow night, in terms of new policy details that could capture additional support from remaining independent, undecided voters.

However, there are several tactical enhancements that could move Romney beyond uncomfortably sidestepping his role as Massachusetts governor in facilitating an individual mandate, an exchange-like “Connector,” and Medicaid expansion. Simply promising to repeal Obamacare and not reinstall Romneycare version 2.0 in its place, while outsourcing everything else to state governments, won’t cut it. But Romney also can’t afford to create (or borrow) a new health policy agenda overnight.

Of course, the GOP candidate should provide a few thematic signals of WHY a Romney White House would move in a different direction that will improve the health care we receive. It’s not just to undo the damage of Obamacare but to provide fairer tax treatment for all health care purchasers and revamp our health care system to be more accountable and responsive to patients and consumers (instead of only to politicians and interest groups). Plus, a better version is needed of “Message: I care” when it comes to protecting the most vulnerable Americans in a sensitive and sustainable manner.

But after establishing a threshold of credibility for a positive approach to health reform, Romney’s mission in the health debate tomorrow remains to win an election, not summarize a health policy tutorial (not even in PowerPoint). In terms of picking up new voters at this late date, the Romney debating points will need to be direct and devastating in reminding television viewers why they dislike Obamacare so much. Its two core vulnerabilities that the president cannot deflect involve taxes and trust.

(Sorry, the individual mandate is off-limits, as a pre-existing condition for both candidates).

Romney needs to highlight the long chain of tax increases (especially the hidden, indirect, and unindexed ones) put in place to finance a large portion of Obamacare’s future costs and how all of them will hit workers and patients one way or another.

The Republican nominee then needs to tie this to the larger Achilles heel of Obamacare: How it was constructed on a hollow foundation of broken promises, accounting fictions, and “whatever it takes” politics to deliver control of key health care decisions into the hands of unaccountable political bureaucracies in Washington. Why? Because the architects of Obamacare and the president are always sure that they know what is best for the rest of us, who cannot be trusted to make independent decisions in line with our own personal preferences, needs, and values.

Governor Romney should admit that he doesn’t know every detail of what might be best for American health care. But he should not have to, because hundreds of millions of patients, consumers, and the medical providers THEY choose will; in a more decentralized, depoliticized, competitive, and transparent health care system.

They offer a false choice: Delivering innovation and efficiency by keeping providers and patients under the political thumbscrews of centralized price controls (relabeled “global budgets”) and value measures set by unaccountable bureaucracies. Their proposal essentially aims to replace the private-sector-based middlemen and vouchers they decry with a too-familiar set of unelected political managers and budget-driven spending caps. They would limit competitive bidding to a narrow range of whatever health care products they can regulate as commodities, but they keep it away from what matters most – packaging and pricing health services in ways that appeal to consumers rather than the usual insular cast of health policy “experts” who always know what is best for everyone else.

Emanuel, Tanden, and Berwick continue to distort the true nature of premium support competition for public and private Medicare plans on a level playing field, while misrepresenting the Independent Payment Advisory Board’s blunt, unaccountable powers. But one key element always remains essential in their benefits plan. No matter what they call their “alternative,” they plan to remain in charge. The other details may or may not be negotiable.

Most conventional analysis paints three or four basic scenarios, while overlooking a more likely one – amputating the Title I private insurance leg of the Act.

Obamacare diehards maintain, perhaps out of habit, that the Court will simply uphold the entire law, so there’s no need for further “severability” analysis. A surprisingly under-informed set of health policy analysts and media sources seem to be gravitating toward the conclusion that the Court will only strike down the individual mandate and leave everything else standing (as the 11^th Circuit Court of Appeals decision in this case did, mistakenly). This overlooks the fact that even the official legal position of the solicitor general on behalf of the Obama administration is that, if the individual mandate is declared unconstitutional, two other insurance regulation provisions for guaranteed issue of private health coverage and adjusted community rating of the premiums for such insurance would need to be dropped as well. (Translation: The ACA’s over-touted “protections” against insurers’ charging more, or denying coverage, in the individual insurance market would be overturned even before they are scheduled to go into effect in January 2014). Consider this the “best case” scenario for ACA defenders if they lose the individual mandate issue on constitutional grounds.

Such a ruling is certainly plausible, if not probable, given the backdrop of congressional findings of fact (or fiction, but within the standards of most Capitol Hill deliberations) in the ACA statutory text that tried to justify the individual mandate as necessary to make those two regulatory provisions feasible.

The primary opposing scenario, in our bipolar world of health politics merged with constitutional law litigation, would involve the Court declaring the entire law unconstitutional and beyond redemption (at least until after the next election). Most opponents of the health law are hoping for this result, but it may prove too sweeping and politically charged (Bush v. Gore, redux?) for a majority of Supreme Court justices.

However, there may be another way to excise the most constitutionally infirm portions of the ACA, without letting its regulatory and income redistribution weeds grow back within a few years. Last January, I headed a group of ten health policy scholars (most of whom are affiliated with AEI) in joining our friends at the Competitive Enterprise Institute in filing an amicus brief on this severability issue in NFIB v. Sebelius. With the expert legal work of former Reagan Justice Department attorney Thomas Christina (now at Ogletree, Deakins, Nash, Smoak & Stewart), the brief argued, first, for overturning the entire ACA on the basis of its legislative history and congressional intent but, second, at a minimum invalidating all of its Title I provisions due to their interrelated structure, coordinated functions, and common goals. Here are the plain English basics of the argument:

Severability analysis (what happens to the rest of a law passed by Congress when a portion is declared unconstitutional) at the Supreme Court is not always consistent. Sometimes, the desired legal outcome comes first, and then the Court works backward to come up with a rationale for it. (There goes my bar membership, for uttering such heresy!) The more polite language to use is that how such a remedy is shaped remains “discretionary.”

But in most cases, a two-part test usually involves, first, whether Congress would have voted to enact the rest of the law without its unconstitutional provision (i.e., Did the essential “legislative bargain” require its retention?). Second (but not always in this order), can the rest of the law still function without the offending provision in the manner that Congress intended? (This is sometimes called the functionality test.)

Although some legal or health policy analysts sometimes blow smoke to the contrary, there are no presumptions to be drawn from the absence of a severability clause in a piece of challenged federal legislation, and the Court does not automatically presume that it must try to retain as much of a constitutionally flawed law as it can. But it generally will refrain from narrowly reconstructing or rewriting such laws, to avoid creating new versions that Congress never adopted.

Our amicus brief argument contends that if the standard of analysis is congressional intent, then the history of the ACA clearly indicates that Congress could not have adopted the law without including the individual mandate. Final House passage occurred in March 2010 under a closed rule requiring an up or down vote on the Senate-passed version of the ACA (with the individual mandate inside as its coverage microprocessor) and no amendments allowed. The loss of a 60-vote majority for Senate Democrats after the Scott Brown election the previous January meant that no revised legislation could pass a filibuster-prone Senate again.

This half of our brief supports the case for invalidating the entire ACA, if the individual mandate is declared unconstitutional.

The second half examines how the ACA might function without an individual mandate. We conclude that all of the provisions in Title I of the law are inextricably intertwined, as essential parts of a comprehensive strategy to establish and promote more health care. The centerpiece of its plan to achieve coverage, quality, and affordability goals for a specific subset of the population (working Americans and their families) in various stages involve provisions for health benefits exchanges, along with the individual mandate, an employer mandate, tax subsidies for premiums, essential benefits rules, cost sharing restrictions, and a number of other new insurance requirements. For example, the individual mandate was designed to lower the official budgetary costs of additional coverage requirements, while the exchanges are assigned the job of determining exemptions from the mandate. Federally required enhancements of insurance benefits are aimed at increasing demand for exchange-based coverage as well as employer-sponsored insurance.

Hence, if the Court balks at overturning the entire ACA after finding the individual mandate unconstitutional, we argue that it should not pick and choose among different parts of Title 1 but instead strike down that entire self-contained section of the overall law.

What about the Medicaid expansion provisions in Title II of the ACA? Another amicus brief has argued for striking it down along with Title I. Loss of the individual mandate would reduce demand for new Medicaid coverage, but it appears more difficult to invalidate other Medicaid reform provisions in that section of the ACA, and some Justices might grow apprehensive about invalidating expanded coverage for as many as 16 million currently uninsured Americans (particularly if the Court has already ruled against a more direct challenge to the Medicaid expansion that claims it is unconstitutionally coercive).

A few other amicus briefs representing health industry sectors have argued narrowly for overturning the employer mandate, or the guaranteed issue/community rating portions of Title 1, if the individual mandate falls. But their arguments appeared too narrowly selective and transparently self-serving.

During oral argument on March 28, Justice Samuel Alito specifically noted the basic contention of our amicus brief, to consider striking down all of Title I (p. 25). And Chief Justice Roberts later signaled subtly that even the Medicaid coverage provisions might become vulnerable if the individual mandate was ruled unconstitutional (p. 49).

So don’t be surprised if the Court decides to take a somewhat more surgical approach to how it severs remaining surviving portions of the ACA, if it decides to rule the individual mandate unconstitutional. But don’t expect the justices to go completely Old School, in the King Solomon sense.

Bring out the usual clichés:

•    What was the wind chill factor today in Hell?

•    The lion and the lamb shall lay down together (Nope: it’s a co-tenancy with a wolf).

•    What were the other six warnings signs of the Apocalypse?

•    Even a stopped clock is right twice a day (and check out that blind squirrel’s acorn…)

•    There really is a pony inside that room piled high with manure.

•    C’mon. We kid because we love.

Suffice it to say, I’ve been a little critical of the other brother Emanuel’s advice on health policy reform in the past. But the desperate search for the road to bipartisan entitlement reform (it only takes two, if you’re filling up an ark for the great fiscal flood ahead) means any semi-plausible rationale for trimming back the outer bounds of our unfunded political lies (we call them “promises” in Washington) is worth a second look.

The shorthand description of the proposal is to replace a fixed “normal” age of eligibility for cashing in on the taxes of younger Americans with age of eligibility linked to one’s place in the lifetime earning distribution. The lower 50 percent of new retirees (I’m assuming the proposal would only operate prospectively) would be insulated from this change in policy, while the top quarter of seniors would have to wait the longest for their federal paydays to start (age 70 for Medicare, and age 71 for Social Security). The minimum age for social security retirement benefits would be adjusted similarly, but delayed retirement credits would remain in place.

The empirical argument for this change (aside from re-soaking the rich by narrowing the entitlement spending spigot, instead of extracting their dollars through the tax code—although I suspect the former would not replace the latter in the full Emanuel package) is that the lifespans of richer Americans have grown longer in recent decades than those of less affluent retirees. Perhaps those extra dollops of grey poupon are good for your health!

Is it time to close the dreaded longevity gap, and try to equalize the time in orbit for retirees on federal taxpayer support? Emanuel presents the proposal as not changing richer Americans’ state-given right to health and retirement benefits when they get older; it’s just a matter of adjusting WHEN they first get them.

The concept has some broader appeal on equity grounds, but more affluent, older Americans can do the math (or ask their financial adviser to check into it). Speculation over how the electoral math might change is premature, depending on which desperate options we might be choosing among when Congress finally approves a budget within our lengthening lifetimes.

However, several complicating aspects of the proposal remain.

•    Social security benefit formulas already are very progressive and favor workers with lower lifetime earnings.

•    Wasn’t progressive indexing of future social security benefits a better way to reduce the future growth rate of payments to higher earners?

•    The purported regressivity of the lifetime dollar amount of Medicare benefits has been diluted, if not fully reversed, over the last two decades.

•    The proposal overlooks the effects of lifetime wealth and other sources of non-wage income in making its adjustments.

•    Even relatively richer young retirees would face difficulties in relying more on current private markets for pre-Medicare health insurance coverage. Medicare buy-in options always sound better on paper than they unfold in practice.

•    Wary analysts should account for compensating behavior like increased rates of claims for disability benefits by younger retirees (and the Disability Insurance fund is headed toward insolvency well before Social Security or Medicare spring major fiscal leaks).

•    After recent rounds of Medicare income-related premiums, additional Medicare-dedicated taxes on the wages and capital income of higher-earning Americans, unindexed income taxes on social security benefits for growing numbers of retirees, and various caps on Medicare premium increases for different cohorts of retirees receiving small, if any, COLA hikes to their monthly retirement checks, the most “universal” characteristic of Social Security and Medicare is that both programs are running short of money and unable to fulfill all of their past promises.

Finally, the more powerful driver of growing differences among retirees in remaining life expectancy is more likely their relative levels of education; not their lifetime incomes.

So, perhaps we should consider reducing promised benefits first for more highly educated Americans (we could start with the past and present Obama White House staff!). Except that they’d be more likely to find out about it ahead of time and lobby more articulately and extensively against the idea.

Okay, then let’s start with a future benefits reduction for all those under-age-26 slackers sucking up their parents’ group insurance coverage under ObamaCare’s regulatory cross-subsidy, without looking for a job and moving out of the basement. Don’t let them think they are legally entitled to other people’s money until they are at least a “subsidy-adjusted” age of 65, with at least 43 years of previous adult-like financial independence!

 Sifting through the Evidence

In ancient times, soothsayers used anomalies in animal entrails to predict or divine future events. The technical term for such ritual slaughters in special ceremonies was “extispicy” (not to be confused with “extra spicy”).

Most media reporters and analysts are more sophisticated today when it comes to forecasting how the Supreme Court will rule. With apologies to Warner Wolf, their gut reactions usually start with the phrase, “Let’s Go to the Audio Tape!”

Although the questions and comments of the nine justices (uh, make that eight, while Clarence Thomas remains within his individual Cone of Silence) during last week’s oral argument are only possible early indicators of how they finally will vote, they supply the speculative markers for the latest Washington parlor game.

Scalia Takes the Lead

Justice Antonin Scalia undoubtedly took the lead in pointing out the many holes in the government’s constitutional case for the mandate:

• The regulation of health insurance purchasing has to be “proper,”

• The relevant market here is not health care,

• It’s a self-created problem for the government, and

• If the federal government can do this, “what else can it not do?”

 Key Justices

But in putting together an effective 5-4 majority, the key justices are Anthony Kennedy and John Roberts. Justice Kennedy’s remarks during the opening rounds of argument last Tuesday raised the most concerns among defenders of the individual mandate. They should be afraid, be very afraid:

• “Can you create commerce in order to regulate it?”

• “Assume for the moment that this is unprecedented, this is a step beyond what our cases have allowed, the affirmative duty to go into commerce.”

• If so, doesn’t the federal government have “a heavy burden of justification” under the Constitution “when you are changing the relation of the individual to the government in this …unique way?”

• “And here the government is saying that the Federal Government has a duty to tell the individual citizen that it must act, and that is different from what we have in previous cases.”

• “[T]he reason this is concerning is because it requires the individual to do an affirmative act.”

• “Can you identify for us some limits on the Commerce Clause?”

Of course, Justice Kennedy would have disappointed if he did not also toss out a few more ambiguous “on the one hand, but on the other hand” comments:

• “I’m not sure which way it cuts, if the Congress has alternative means…In one sense, it can be argued that this is what the government is doing [use the tax power to raise revenue and just have a single payer]; it ought to be honest about the power that it’s using and use the correct power. On the other hand, it means that since the Court can do it anyway – Congress can do it anyway, we give a certain amount of latitude.”

Whatever.

Although even his past clerks often cannot predict which way Justice Kennedy will vote, his judicial weather vane seems to be pointing more in an “unconstitutional mandate” direction.

Chief Justice Roberts is seen as skeptical about the constitutional bona fides of the mandate but also looking to ensure that any final Court ruling can be understood and accepted by the general public. His comments reveal concerns about opening a new door to congressional power that cannot be subject to constitutional limits in unanticipated future cases.

• “[T]he states are not limited to enumerated powers. The Federal Government is.”

• “[I}t’s critical how you define the market….But your theory is that there is a market in which everyone participates because somebody might need a certain range of health care services, and yet you’re requiring people who are not – never going to need pediatric or maternity services to participate in that market.”

• “Is your argument limited to insurance or means of paying for health care? …But once we say that there is a market and Congress can require people to participate in it …it seems to me that we can’t say there are limitations on what Congress can do under its commerce power, … all bets are off, and you could regulate that market in any rational way.”

• “But next year, they can decide everybody’s in this market; we’re going to look at a different problem now, and this is how we’re going to regulate it. And we can compel people to do things – purchase insurance, in this case; something else in the next case – because…we’ve accepted the argument that this is a market in which everybody participates.”

• “[O]nce we say this is within Congress’s commerce power, there’s no reason other than our own arbitrary judgment to say all they can regulate is the method of payment. They can regulate other things that affect this now-conceded interstate market in health care in which everybody participates.”

• “But what I’m concerned about is, once we accept the principle that everybody is in this market, I don’t see why Congress’s power is limited to regulating the method of payment and doesn’t include as it does in any other area… [O]nce you’re in the interstate commerce and can regulate it, pretty much all bets are off.”

 Better Make that “LifeCall”

The old betting line for the individual mandate and the Affordable Care Act has shifted. ObamaCare is the underdog and can’t just run out the judicial clock. It’s on the downhill side of a slippery slope, perhaps one Supreme Court vote away from admitting that it’s “fallen and can’t get up.”

Many observers concluded that Solicitor General Donald Verrilli failed to convince a majority of the nine Supreme Court justices in last week’s oral argument that the individual mandate should be upheld. How did the lead attorneys for those challenging the mandate fare in making the case for striking it down?

Paul Clement represented the 26 states challenging the mandate and the rest of the ACA in the Florida v. HHS case. His part of the oral argument dealt primarily with rebutting the economic and health policy rationales used by the federal government to justify the individual mandate as a necessary and proper way to execute the constitutional power of Congress to regulate health insurance as part of interstate commerce. Clement’s role was to soften up the premises behind the mandate. However, his arguments would not be the crucial ones for reaching any final decision on the mandate’s constitutionality. The Supreme Court generally defers to whatever Congress claims it is doing, as long as it has a “rational basis” for its policy judgments. Given the past record of Congress, grading on the curve usually will produce a social promotion in the legal sense, no matter how tenuous the evidence base it uses turns out to be. (Beware the soft bigotry of low expectations under such constitutional analysis…)

Congress and its legal defenders tried to build a “cost shifting” case (no matter how exaggerated and empirically challenged) for why the individual mandate was needed both to reduce the economic burden that millions of uninsured Americans impose on private insurance premium payers and to ensure the effectiveness of the ACA’s other insurance regulations.

Clement’s argument suggested that several other policy alternatives could accomplish those objectives better, without running afoul of the U.S. Constitution. He noted that cost shifting is not uniquely confined to the health market. There are other markets that “affect everyone” or produce costly economic effects on other parties when someone fails to purchase, or pay for, a product. Clement described two kinds of cost shifting at play in the sort of markets involved in this case. He explained that the much bigger amount of cost shifting would occur if the federal government could successfully force healthy people into the health insurance market through a mandate. He observed that such people are not likely to seek uncompensated emergency care, and they are not likely to use the insurance they would be forced to buy.

Clement emphasized that Congress really was trying to force individuals into the health insurance market in order to subsidize those who are already in it and lower their rates. But Congress could do this in a constitutionally appropriate manner by raising taxes and subsidizing insurers to cover high-risk individuals, instead of mandating that private individuals foot this bill.

Clement added that all sorts of people will not use health care in the next year, which is the relevant period for an insurance market that generally operates with annual contracts. He also distinguished the case of state-mandated automobile insurance from that of the ACA’s individual mandate for health insurance. State residents retain the option of “withdrawing” from the automobile, and auto insurance, markets (or moving to another state).

The more important arguments against the individual mandate last Tuesday came from Michael Carvin, counsel for the National Federation of Independent Businesses and several private individuals in the Florida v. HHS case. He sharpened the case for why the ACA’s individual mandate is unprecedented, unlimited, and unconstitutional. Carvin pointed out that every purchase compelled by law could “promote commerce,” but it would not make such laws constitutional. Compelling the creation of commerce is not the same as regulating it in a permissible manner. He noted the government’s argument that almost everyone will have to enter the health care market. Carvin responded that if simply being born is entering the market, then “that literally means they can regulate every human activity from cradle to grave.” (Or, perhaps at least past the point of viability, under post-Roe v. Wade jurisprudence?)

The key constitutional law distinction is between regulating participants after they have entered into a contract or otherwise engaged in commerce, and compelling them to do so beforehand, according to Carvin. He turned a question from Justice Kagan (who asked whether the “activity vs. inactivity” distinction set limits on the commerce power) on its head by saying that the key word is “commerce,” which is in the text of the Constitution. He then underscored that the federal government’s alternative “bogus” limiting principle for the commerce power simply tried to draw distinctions among different industries.

Carvin also criticized how the ACA’s mandate really was aimed at making young, healthy people subsidize insurance premiums to cover the additional cost that the law’s nondiscrimination provisions added to insurance premiums. He suggested that the massive cross-subsidies created by the mandate illustrate the dangers of giving Congress such plenary powers to compel commercial activity, because it can always leverage them to support other public policy goals. Without some constitutional limit of such powers, Congress could compel you to buy ANY product, because any purchase is going to benefit commerce.

Carvin’s best concluding argument against the constitutionality of the individual mandate was that it failed to meet a very simple test: “Are you buying the product, or is Congress compelling you to buy the product?”

That increasingly looks like a line the Court will not allow the ACA’s individual mandate to cross.

We start with Solicitor General Donald Verrilli, Jr.’s case for the individual mandate. Verrilli insisted that Congress used the individual mandate and its penalty provisions merely to regulate how people pay for health services that they are virtually certain to use at some point in their lives. He noted that even the opposing side’s attorneys had conceded that Congress could require that individuals have insurance in order to get health care at the point of sale (or point of service). But that limited type of just-in-time insurance requirement would not work very well. It still would cause substantial costs to be shifted from the uninsured to other parties. (No one in court brought up how retroactive enrollment in Medicaid actually operates in many hospital settings to “insure” low-income, uninsured patients when they show up and receive treatment).

Does the federal government therefore have authority to ensure that people have a better way to pay for health care – through insurance – in advance of that point? Vercelli emphasized that the market for health care is very unique. Participation by an individual at any particular time is often unpredictable and often involuntary. You often don’t know before you go into this market what you will need (sort of like opening up Forrest Gump’s metaphorical box of chocolates). And you still might get it even if you can’t (or won’t) pay for it.

Admittedly, U.S. health policy has a long history of paying one person’s health care bills with someone else’s money — whether through third-party insurance dollars, taxpayer-financed entitlement programs, federally-mandated emergency care, or uncompensated care subsidies. Indeed, the requirement to pay far in advance has been stretched even further in the case of Medicare – across several generations – with no secure guarantee that younger “contributors” will receive fair value in return for their taxes and debt repayments, many decades ahead. (No refunds are allowed, either, in such underfunded, pay-as-you-go schemes). But even the latter Ponzi scheme (“It’s good to be the king…”) is legally authorized under the power of Congress to tax, not its power to regulate commerce

Verrilli assured the Court that the commerce power was not completely unlimited. Congress could not rely on it to justify forced purchases of commodities for the purpose of stimulating demand. (We have to rely on the Federal Reserve and deficit spending to handle that job less directly). Nor would it even justify purchases of insurance in situations in which insurance doesn’t serve as the “method of payment” for a particular type of service.

Verrilli went so far as to claim that use of the commerce power in this case did not go further, and justify the “creation” of commerce (a fundamental point that the states and individuals opposing the individual mandate would challenge). The mandate to purchase insurance before health care services were received was just a question of “timing.” And those services would, sooner or later, have a substantial effect on interstate commerce.

One might recall the old joke about someone who claims to be the world’s most famous comedian. He is asked by an interviewer, “What is the secret of your success as the world’s most …..” “Timing,” he replies.

The Solicitor General tried to build a case for the individual mandate as just another necessary part of the execution of fully-constitutional federal insurance regulation. For example, he pointed to the statutory and regulatory requirements of federal laws like ERISA and HIPAA. But both of those laws involve regulating commerce that already has occurred, rather than compelling it to take place initially.

Verrilli’s oral argument also included a recycling of the weak argument that the individual mandate and its penalty for non-compliance should be upheld as part of the congressional power to levy taxes. It did not appear to overcome two major hurdles with most of the Supreme Court justices. (1) On Monday, he had to try to explain why the mandate was not a tax for purposes of the Anti-Injunction Act (AIA), which otherwise might delay consideration of the entire case for several more years. Even though the tests for a “tax” under the AIA are somewhat different from those for whether a tax enacted by Congress is authorized under the Constitution, it’s a tricky dance routine to pull off on successive days of the week in the same case. (2) Particularly when Congress went out of its way in the ACA to insist that the individual mandate was NOT a tax, but just a penalty. Congress even included in the law its findings of fact (or fiction, depending on one’s perspective) that were intended to support the claim that it was relying on its power to regulate commerce in enacting the individual mandate.

When Verrilli was asked why President Obama said the mandate was not a tax (while Congress was still considering whether to pass the ACA), he could only respond, “I don’t think it’s fair to infer from that anything about whether that is an exercise of the tax power or not.” (in other words, but not his: “Who are you going to believe – me or the moving lips of the President and Congress that supported the ACA’s mandate and insisted it did not raise taxes?”)

The Solicitor General’s most difficult assignment was to frame and articulate a clear limiting principle in constitutional law that would authorize the individual mandate but not leave future use of the congressional power to regulate commerce so sweeping that it would be essentially unlimited and authorize the forced purchase of many other goods and services beyond just health insurance. Verrilli’s attempts to do so under questioning by several justices were not very successful. His best version offered two limiting principles.

· When Congress approves a comprehensive regulatory scheme that it already has constitutional authority to enact (like regulation of health insurance or the purchase of health care), the Necessary and Proper clause of the U.S. Constitution gives it authority to include regulation of this kind – to counteract risks attributable to the scheme itself, and

· With just its commerce power alone, Congress can regulate the method of payment for health care by imposing an insurance requirement in advance of the time that a health care service is consumed, when the “class” to which the requirement applies either is, or is virtually certain to be, in that market.

But the bottom line is that it appears that a majority of the Court did not find these efforts at framing a limiting principle in constitutional terms clear, consistent, or sustainable. And they did not get the joke in the ACA’s mandate argument. Wrong time, wrong court, wrong law.

Coming up next, the legal case for the other side, and how the various justices reacted.

As an initial act of full disclosure, Professor Dellinger tried to teach me his version of constitutional law at Duke Law School in the early 1970s. (He failed at that in the long run, although I received a very high grade from him). He was an engaging lecturer, popular with students, still early in his career, and a quite energetic advocate. But I have no conflict of interest in this case. When it comes to his second-hand understanding of health policy, and the legal position he pushes too far, he’s wrong. And his myths are as good as a mile off base.

– Does the individual mandate force everyone to buy health insurance? Dellinger’s argument actually underscores how weak the mandate in the ACA really is, without admitting that this will limit its effectiveness. However, that did not stop the Congressional Budget Office from basing most of its overly optimistic estimates of increased health insurance coverage under the law to the apparent lemmings-like compliance with a similar mandate in Massachusetts because “it’s the law!” The ACA mandate actually would apply to everyone who is not exempt (mostly due to something about “unaffordable” coverage, I hear), including the vast majority of Americans who already are insured, but would be subject to its penalties if they ever lost or dared to drop their existing coverage.

– What would invalidating the individual mandate affect in the rest of the health law? Dellinger adopts the selective severability stance of the Obama administration, which argues that losing the mandate would jeopardize all the “good stuff” that people want from the ACA’s insurance regulations (guaranteed issue and community rating) and jeopardize the private insurance market (demonized as greedy and heartless on other days of the week), but nothing else. The legal problem with this argument is that it fails to square with the two primary rules for severability of unconstitutional provisions from a larger and more complex law. (1) Would Congress have enacted this law without the constitutionally invalid provision (the mandate)? (2) Can the provisions in the rest of the law function as intended without this unconstitutional provision?

The best legal answer to the first question is “No way.” The law barely passed, with no margin to spare, and neither the House nor Senate was permitted to vote to amend, or drop, the individual mandate. Hence, any complete review of the legislative bargain involved in passing the ACA would invalidate the entire law. But the Supreme Court doesn’t always reach the simplest decision when other factors are in play. It would be, not quite in Vice President Biden’s off-mike words, a really big deal for the Court to take down the entire health law and leave nothing standing. So, when we turn to the second test, it’s a bit more complicated. The Court does not want to act as a super-legislature and pick and choose among many pieces of a badly interconnected contraption posing as the latest congressional work of off-kilter art (think of Picasso as the primary drafter, rather than someone from the Impressionist school).

The approach advocated by Dellinger, and the current solicitor general in briefs filed with the Court, attempts to be too clever by half. It in effect says that the individual mandate is inextricably tied to the success of several health insurance regulations that Congress clearly had constitutional authority to enact (thereby bolstering the broader commerce power argument for the constitutionality of the mandate itself—either as necessary and proper to execute such regulation or, as in the recent Raich case language upholding federal regulation of home-grown medical marijuana, “an essential part of the larger regulatory scheme” for carrying out constitutionally valid federal purposes).

The health policy problem here is that two wrongs do not make a right (except in Congress). Guaranteed issue and community rating have disrupted insurance markets in states that adopted such regulations because they don’t make economic sense and only try to shift the higher costs they produce on to other unwilling parties. Compelling such transactions through the coercion of a government-enforced individual mandate may redistribute temporarily those higher costs through less visible cross-subsidies and price distortions, but it doesn’t reduce them overall.

As a constitutional law matter, the individual mandate is not “necessary” for executing those insurance regulations; it’s just used to get other parties to pay (off-budget) for the increased costs they produce for the primary targets of regulation. Nor is it “proper” as an ordinary mechanism for carrying out commerce power regulation, let alone consistent with the traditional allocation of constitutional powers and liberties between the federal government, the States, and the people. Indeed, the mandate—compelling someone to enter into commerce and then buy a government-approved private product—is unprecedented and unbounded by any effective limiting principle.

Moreover, Dellinger’s suggested line to be drawn for severability is far too arbitrary and politically opportunistic. The better functional dividing line for the ACA provisions that cannot operate as intended, without an individual mandate, extends at least across all of the health coverage and insurance regulation provisions—not just the “popular” ones—in title I of the ACA (as I have argued with several other health policy and health law colleagues in an amicus brief submitted in this case).

– Dellinger tries to dismiss the argument that, if the unprecedented mandate is upheld as constitutional, there will be no remaining constitutional law boundaries limiting what a future Congress could do in the name of regulating commerce. The Tuesday morning questioning by a number of Supreme Court justices suggests that they’re having a harder time finding any limiting principle in the federal government’s legal argument for an individual mandate. (I’m buying options on broccoli futures, to hedge my bets). Healthcare is different in one sense—it is more regulated, politicized, and financed with other people’s money than just about any other good or service in our still-largely market-based economy. But the modest amount of cost shifting that actually occurs in healthcare, as well as the uncertainties, risk of high costs, asymmetric information, and imperfect competition that Americans potentially face for healthcare, are present in a number of other markets for goods and services. And the ACA simply uses government coercion, hidden cross subsidies, and price controls to redistribute and shift healthcare costs on an even larger scale through political means from one group of Americans to another. (That would be the conservative definition of “freeloading” through the political system).

– Is the law “socialist”? Dellinger trots out this straw man to recycle a different myth; that the mandate is just a good old-fashioned Republican idea first developed by the type of GOP leaders who used to be good losers and dutiful tax collectors for the welfare state. (Their best ideas used to be called “Constructive Republican Alternative Proposals” in the old days, but better described in their shorter, acronym form). I’ve written elsewhere about the real past history of some Republicans’ bad blind date with a mandate in the early 1990s, when RINOs still roamed across a larger stretch of the watering holes for the GOP’s ruling class. As once was said during the second Reagan administration, “Mistakes were made,” but not at the grassroots level where support for the mandate never existed to the degree it might have been imagined in Washington. The Massachusetts detour into a mandate last decade was well outside mainstream Republican thinking, and the state’s former governor still has to choreograph his own dance steps around it. I’m also still waiting for that Washington Post story that points out that reducing marginal income tax rates was a Democratic idea—at least during the Kennedy administration! (Don’t hold your breath).

– Have we seen this all before? Dellinger’s final myth is that this latest “threat to liberty” soon shall pass, as did earlier objections to social security, Medicare, and minimum wage laws. (He shows remarkable restraint in not tossing in civil rights laws for gratuitous effect). He obscures the constitutional law distinction that those expansions of federal power flowed from the less restrictive nature of the power of Congress to raise taxes and spend money to enhance the general welfare (though not exclusively limited to expanding the welfare state, to be sure) or to regulate the terms of interstate commerce when it actually takes place. Somehow, the apologists for the view that politics alone will provide the necessary checks and balances to restrain unwise or excessive exercise of such sweeping federal power nevertheless stop short of that stance when their more-favored constitutional rights and limits on government power are on the line elsewhere—like, say, free speech under the First Amendment, or whatever greater level of equality and new rights can be coaxed out of the 14th Amendment, or whenever any other emanations from penumbras can be found. The Tenth Amendment appears to be another part of outdated fly-over land in their more modern Constitution.

At least that’s more or less how I recall it in some of the law school classes in Durham that I’ve been able to leave behind as well, or at least update based on a broader evidence base.