Tuesday, May 29, 2012

The bogus economic basis of the case against the individual mandate

As I have noted before, the plaintiff's argument against the constitutionality of the individual mandate in the Affordable Care Act centered largely on a morality tale spun by the plaintiffs, in which the main characters were hoards of healthy young adults being forced to buy more coverage than they need in order to subsidize the coverage of older adults. The ACA is structured "to compel the uninsured into engaging in economic activity that is harmful for them" (Michael Carvin brief on the individual mandate, p. 1). "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, oral argument, p. 100). In the 3/27 pleadings, Justices Alito, Roberts and Scalia appeared to buy this argument, voicing various aspects of it.

I have also pointed out that the Michael Carvin misrepresented the mandate in oral argument when he stated. "Congress prohibits anyone over 30 from buying any kind of catastrophic health insurance" (p. 105). In fact, the ACA provides the catastrophic coverage option for others exempt from the mandate, e.g. on grounds of financial hardship. In the 3/27oral session, no one pointed noted explicitly that the ACA provides a catastrophic coverage option for those under 30, let alone that it extends that option to others exempt from the mandate on financial or other grounds -- or that the bronze plans offered in the exchanges, as the Kaiser Family Foundation recently detailed, might also reasonably be labeled "catastrophic" coverage.

Now, two economists from the University of Michigan, Jill Horwitz and Helen Levy, writing on the Health Affairs blog, demonstrate on several fronts that  bogus economic premises underpin the plaintiff's argument that the mandate exploits the healthy young uninsured for the sake of the sick and old -- and that it grants Congress unlimited powers to impose purchase mandates. The main thrust of their argument is that the health insurance market is unique across several dimensions, while bogus analogies to mandated purchases of cars or broccoli or whatever are each analogous in only one dimension. Then, regarding the emotional core of the plaintiffs' case -- those imagined legions of healthy young people exploited by the mandate -- Horowitz and Levy write:

Contrary to assertion in the AAF brief (AAF Brief 8, 25), the Act does not impose pure community rating – which would indeed entail substantial transfers from young to old – but rather, it employs community rating with variation in premiums for age, geographic location, family size, and smoking status.  In fact, it allows quite a bit of adjustment for age.  Insurers may set premiums for older individuals as much as three times as high as those for younger individuals. There was no mention of this feature of the law in the AAF brief or during the oral arguments; no acknowledgement that the higher average spending of older people would be reflected in their higher premiums.

The three-to-one “age band” in premiums is the same as the ratio of average medical spending for 45 to 64 year olds to spending for 18 to 24 year olds, according to data from the 2009 Medical Expenditure Panel Survey. Moreover, the ACA also offers young adults up to age 30 the opportunity to purchase catastrophic policies that are not available to older adults.

Taking these two features of the law into account, it is not clear there will be much redistribution from young to old as a result of the ACA at all. There will, within each age group, be pooling of good and bad risks; by definition, this is how insurance works, and as noted above is a more efficient outcome than one in which markets do not exist because of adverse selection.  But subsidies from young to old are a red herring.
Also bogus: the notion that the young and healthy do not need or want insurance.  That argument was debunked, as I've noted before, in a brief  filed by a coalition of 20 youth organizations calling itself, with pointed irony, the Young Invincibles. The Invincibles brief demonstrates that young people overwhelmingly want health insurance; that they are disproportionately uninsured and underinsured; that their lack of health insurance causes them bodily and and economic harm; and that the ACA makes insurance affordable, not unaffordable or unduly expensive, for them.

That the mandate is quite limited in scope, that it does not exploit any identifiable class of citizens, and that it makes coverage affordable for every identifiable group of citizens currently unable to afford it does not in itself prove the constitutionality of the mandate. But these facts do undercut the narrative on which the plaintiffs based their moral (and emotional) case. And it was their story line -- the image of legions of financially impressed healthy young people -- that appeared to register with the conservative justices.

More on catastrophic coverage in the ACA and misrepresentation of the mandate in the Supreme Court

On the mandate more broadly
The individual mandate is a piece of Cake (4/25)
Verrilli's limiting principles (4/24)
If only Verrilli had said (A, B, C) (3/31)
Verrilli, slapped silly, recovers willy-nilly (3/28)
External links
Patient cost-sharing under the Affordable Care Act (Kaiser Family Foundation. 4/27)
Will the justices make a catastrophic error? (Jonathan Cohn, 4/19)
Policy ignorance at the Supreme Court (Steve Benen, Maddow blog, 4/16)
Supreme Court misunderstanding on health overhaul? (AP's Ricardo Alonso-Salvidar, 4/10)
The bounded, minimalist way to uphold the ACA (Marty Lederman at Balkinization, 4/2) 
Ragbatz on the catastrophic coverage options in the ACA - a healthcare attorney picks up the plaintiff's con in real time ( 3/28)

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