Commentary: Court should see economic sense on health care

When the sun hits the brilliant white marble of the Supreme Court building on a clear spring day, it is so bright you can’t look at it. Thus illuminated, the court becomes the sun: the epicenter of the Washington world.

It is exceedingly rare for the Supreme Court actually to be at the center of events in government. But starting on Monday, for a few days, it will be.

The signature accomplishment of Barack Obama’s administration is on the line. To strike down the Affordable Care Act, the court would to announce that mandatory insurance coverage is, quite literally, beyond the power of the government.

In economic terms, that would mean saying that universal health care in the U.S. can’t be achieved except through a single-payer system administered entirely by the government, which in political terms seems essentially impossible. If the mandatory coverage provision goes, so does the whole program.

Obama’s legal team has embraced this all-or-nothing approach, and for good reason. They have told the court that mandatory coverage is not “severable” from the rest of the law. If the court holds that the government cannot require you to be covered or pay a fine, guaranteed issue of coverage to all comers, the core of the law, will cease to operate.

The reasoning behind this strategy is the common sense of economics. We each have better information about the state of our own health than the insurance company. If the price of insurance reflects the average health of the population, the healthiest people are most likely to turn down coverage. As a result of this adverse selection, economists have shown, the system can unravel. This would leave a large section of the population without insurance, even though they would benefit from coverage by a greater amount than it would cost to provide it for them.

Health insurance, it turns out, presents a classic case of market failure. Without government intervention to require universal health insurance coverage — a good that many people want and are willing to pay for — it will not be available to all.

The Obama legal team, therefore, does not want the Supreme Court to hide behind the fig leaf of saying that it has only struck down part of the plan if it strikes down mandatory coverage. Mandatory coverage is the linchpin of the health care bill, plain and simple. Getting it past Congress was the most significant domestic policy accomplishment not only of this presidency, but also of any presidency since the Great Society programs of Lyndon Johnson.

Expanded regulatory power

The economic nature of the mandatory care provision goes to the heart of the arguments that the Supreme Court will hear for the next three days. The Constitution expressly gives Congress the authority to regulate commerce between the states.

Everyone agrees that this power has expanded over the last two centuries. Its high point was reached during the era of the New Deal, when the court held that the government could regulate a farmer’s production of wheat for personal use, because his doing so substituted for wheat purchased from others and thus affected the grain market.

Does the mandatory coverage provision similarly affect economic outcomes? Clearly — it fundamentally determines the economic structure of health insurance. The health care bill is a classic instance of government intervention to repair market failure and provide a public good through private means.

The use of regulated private enterprise to produce a public good is precisely characteristic of the Obama administration’s ideological vision. The social programs of the past largely provided the good directly — think Social Security or welfare benefits. Sometimes, as with Medicare and Medicaid, the government provided the good of insurance without providing the end product of the health care itself. Obama’s health care plan is then just one step further removed from the direct public provision of services, because it essentially requires the creation of private insurance pools.

What, then, are the arguments to strike down the law? They turn on the claim that there is something new and troubling about requiring citizens to pay a fine for having failed to do something. Inaction, rather than action, results in the penalty. To avoid this argument, Obama could (and perhaps should) simply have called the mandatory coverage fee a tax rather than a fine. That would have made it much more difficult to claim that the law was penalizing inaction. But for obvious political reasons, Congress and the president were unprepared to say that they were creating a new tax. Constitutional salvation might well have been political damnation.

Skip the semantics

Nevertheless, the court ought to skip the political semantics and treat the fee as the tax which, in essence, it really is. The court is capable of such common sense: Last week, Justice Anthony Kennedy wrote in a landmark opinion that our criminal justice system is today a system of plea bargains, not a system of trials. That significant decision only came about because he and four other justices described the world the way it really is. The same spirit should pervade this week’s oral argument. Economic reality determined the structure of the health care bill. Economic reality should determine that it is constitutional.

If Kennedy — once again as the swing voter — upholds the Affordable Care Act, his decision will join last week’s as further evidence that he has become a historically important liberal justice. If that is a bridge too far for him, he can still save the law — at least for now — by choosing to understand the mandatory fee as a tax. An obscure law, the Tax Injunction Act, says that tax cases cannot be litigated until someone has actually been penalized by the government. Several appellate judges who considered the health care case ruled that they could not proceed because no one had yet been fined under the law.

If Kennedy wants to avoid striking down the law, but is unprepared to uphold it, he might well follow this line of thinking. Other justices, to his left and to his right, might well join him. That might not be a perfect result — but it would still be a win for common sense.

Noah Feldman, a law professor at Harvard University and the author of “Scorpions: The Battles and Triumphs of FDR’s Great Supreme Court Justices,” is a Bloomberg View columnist. The opinions expressed are his own.