The menace of cost-shifting through mandatory commerce.
by John Hayward
03/28/2012
While ObamaCare has occasionally been painted as a boon to small businesses, the National Federation of Independent Business begs to differ. They’re among the plaintiffs in the case that reached the Supreme Court. To date, their attorney, Michael Carvin, has far outperformed the stammering, often incoherent Solicitor General, Don Verrilli.
The tone of the first days of oral argument made it clear ObamaCare’s individual mandate was in much deeper trouble than either conservatives or liberals suspected, before it arrived on the Court’s doorstep, but Carvin has been helping the cause of liberty by hitting some grand slams. He was particularly effective at tackling two subjects of great interest to small business owners: cost-shifting, and the logical limits of the new “forced commerce” power Barack Obama wants to grab from the states and the people.
Cost-shifting is the phenomenon of passing the losses incurred from “free” health care for the uninsured along to those who have insurance, and/or taxpayers. It’s the primary reason average people are willing to entertain an unconstitutional monstrosity like ObamaCare at all. The uninsured cannot be denied care, as a matter of law, and most people wouldn’t want them to be.
For some reason, the Left’s normally unshakeable faith in “free” goods and services dissolves when they contemplate the cost of providing such care, so it became necessary to forcibly restructure the entire insurance industry with a gigantic budget-busting bill, shoved through Congress in the dead of night over the objections of the American people, and passed into law by people who never read its thousands of pages, in order to deal with the problem.
Even accounting for the general public distaste for ObamaCare, many people still think the cost-shifting argument sounds reasonable. Why should the chumps who pay for insurance be forced to informally subsidize care for the people who don’t have it? The individual mandate forces everyone to carry insurance, or pay a penalty… uh, tax… er, I mean penalty… no, wait, it’s a tax… scratch that, it’s a penalty. The costs are thus dispersed across the entire population. Problem solved!
But in the run-up to the ObamaCare case, critics began demonstrating that cost-shifting from the uninsured to the insured is actually a very small issue. For example, an article published in the Wall Street Journal one year ago, written by John Cogan and Daniel Kessler of the Hoover Institute, with R. Glenn Hubbard of the Columbia Business School, explained that “there is no credible evidence of a cost shift of any substantial consequence,” and “moreover, [ObamaCare] will likely generate more cost-shifting – the opposite of what its supporters would have us believe.”
There are, surprisingly, few peer-reviewed studies of the magnitude of alleged cost shifting at the national level. A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study's authors conclude: "Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance." For the typical insurance plan, this amounts to approximately $80 per year.
The Health Affairs study is supported by another recent peer- reviewed study that focused exclusively on physicians. That 2007 study, authored by Massachusetts I nstitute of Technology economists Jonathan Gruber and David Rodriguez and published in the Journal of Health Economics, found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.
So where did all this “cost-shifting” hysteria come from?
We traced its estimates of the magnitude of the hidden tax of $43 billion per year, or an increase in family premiums by an average of $1,000 per year, to two sources—the aforementioned Health Affairs study, and a non-peer-reviewed study commissioned by FamiliesUSA, a Washington, D.C., group long known for its advocacy of greater government involvement in health care. Yet Congress simply ignored the evidence in the Health Affairs study and failed to recognize the serious flaws in the FamiliesUSA analysis.
That’s right, folks – your health care has been ruined, thousands of jobs have been lost, and horrific damage has been dealt to individual liberty, because of one cooked-up study from a liberal activist group. Three-quarters of the costs for uninsured medical care are borne by government programs and private charities… such as the religious institutions ObamaCare issued a declaration of war against, by forcing them to provide services they find morally objectionable.
ObamaCare makes all this much worse, because so many of the newly covered beneficiaries will be enrolled in Medicaid, which is one of the worst cost-shifting devices in existence. It forces doctors and hospitals to accept low payments for covered services, obliging them to make up the money by charging higher prices to the insured… who are insulated from the effects by several intervening layers of government regulation and private insurance companies. There’s your “hidden tax.”
So the government created what “cost-shifting” there is - by requiring hospitals to provide care for the uninsured, and imposing price controls through programs like Medicaid. The proposed solution is an even bigger and worse government program, which created a new problem by mandating coverage for pre-existing conditions, essentially turning “health insurance” into a welfare program funded by insurance companies. This would be a particularly acute problem if people could simply wait until they got sick to purchase insurance.
And what’s the solution to this new government-created problem? Why, the “individual mandate,” of course! Force everyone to buy insurance, so the mandated coverage for pre-existing conditions doesn’t bankrupt the effectively nationalized insurance companies.
Carvin told the Supreme Court this was a “very illogical argument” from the government. From a transcript provided by Politico:
They seem to be saying look, we couldn't just force people to buy insurance to lower health insurance premiums. That would be no good. But we can do it because we've created the problem. We, Congress, have driven up the health insurance premiums, and since we've created that problem, this somehow gives us authority that we wouldn't otherwise have. That can't possibly be right.
[…] Congress has made a perfectly legitimate value judgment that they want to make sure that people get emergency care. Since the founding, whenever Congress has imposed that public responsibility on private actors, it has subsidized it from the Federal Treasury. It has not conscripted a subset of the citizenry and made them subsidize the actors who are being hurt, which is what they're doing here. They're making young healthy people subsidize insurance premiums for the cost that the nondiscrimination provisions have put on insurance premiums and insurance companies.
Carvin also did a great job questioning the limits of ObamaCare’s brand-new mandated commerce power, which would allow the government to force people to buy insurance, under the Commerce Clause, on the grounds that every human being inescapably enters the health-insurance market the instant they are born. Restricting this power to health care alone would be an irrational and complex enterprise, producing some very leaky dams against the flood of limitless federal power.
When Justice Kagan scoffed at the idea of using complex distinctions, echoing the “unhappy periods” of the Commerce Clause, to declare that living human beings have the ability to escape from the health care market, Carvin brought forth his finest legal judo:
The problem you identify is exactly the problem you would create if you bought the government's bogus limiting principles. You'd have to draw distinctions between the insurance industry and the car industry and all of that. We turn you to the Commerce Clause jurisprudence that bedeviled the Court before the 1930s, where they were drawing all these kinds of distinctions among industries; whereas our test is really very simple. Are you buying the product or is Congress compelling you to buy the product?
I can't think of a brighter line. And again, if Congress has the power to compel you to buy this product, then obviously, they have got the power to provide you — to compel you to buy any product, because any purchase is going to benefit commerce, and this Court is never going to second-guess Congress's policy judgments on how important it is this product versus that product.
Restraining the power of mandatory commerce is a far more complex proposition than asserting the simple and obvious unconstitutionality of the individual mandate. The path of least resistance, and therefore maximum liberty, is to deny this power to the federal government entirely. Permitting its birth will begin an endless war on what remains of our freedom, and the few protections we enjoy will be based on increasingly tortured logic. To throw out an invincibly simple and clear example proposed by Justice Alito, why couldn’t the logic of the individual mandate be used to compel the purchase of funeral services? We all enter that market the instant we’re born, don’t we?
These are the core reasons small businessmen are terrified of ObamaCare. They see an avalanche of costs being shifted onto their shoulders, as the government moves us inexorably away from the free-market principles that really do have a shot at bringing health care costs down… and also further away from the simple and transparent model of taxing the citizens to provide welfare services for the indigent. They fear the same process being used, through the mechanism of endlessly multiplying “individual mandates,” to drop the costs of many things beyond health care onto their backs, in the years to come.
Here are a couple of quotes from small business owners (well, two current and one former owner) released by the NFIB when the ObamaCare hearings began:
David Klemencic
Ellenboro Floors, Ellenboro, West Virginia
“I have not had health insurance for over 12 years and do not want the government to force me to buy it and enter into a disadvantageous contract. The mandate is overreaching and unconstitutional. Both my business and myself will be irreparably harmed if the individual mandate is allowed to stand. The government has never forced Americans to buy a particular product and I don’t believe they should start now. The government should get out of our lives and let us small businessmen and women grow our businesses and create jobs, which is impossible under the mandate and oppressive government regulations. The mandate is indefensible and I am looking forward to being at the Supreme Court to hear the historic arguments.”
Dana Grimes
Premier Renovations, Greenwich, New York
“As a small businessman, I have chosen to forgo health insurance because of the excessive costs to myself and my business. I pay my health care bills in full and do not want the government to force me to buy health insurance that I don’t need nor is warranted. I did not open a business so the government can come and empty my pockets because they deem a certain industry to be in crisis. The bureaucrats in Washington seem to create a new crisis every month. Maybe the next government mandate will force me to buy an electric car that I neither need nor want because of an energy crisis. The mandate is unprecedented and unconstitutional and I am grateful that the NFIB is fighting for small businesses like mine.”
Mary Brown
Unemployed, Panama City, Florida
“While the poor economic conditions forced me to close down my automotive repair business, as an individual and former small business owner I am still subject to the individual mandate and will be forced to buy a product that I don’t want. I joined this lawsuit because I am an adamant believer in individual liberties and freedom and I don’t want the government telling me what I should or should not buy. If the mandate is upheld at the Supreme Court, the government will have all the power they need to force Americans to buy whatever product they want us to. There is nothing more important to the future of our country right now than that this law is struck down.”
From your lips to the Supreme Court’s ears, Ms. Brown.
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To read another article about ObamaCare, click here.
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To read another article by John Hayward. click here.
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