Federal Power vs State Power

Here’s an example of the 10th Amendment in action, which the Supreme Court presumed to ratify, again, in their recent NFIB v Sebelius ruling on the Patient Protection and Affordable Care Act.  Politico is reporting that a number of southern states are going to take advantage of the Court’s ruling to refuse to expand their existing Medicaid programs.  The states are Texas, Florida, Mississippi, Louisiana, and South Carolina.  Wisconsin, Missouri, Kansas, and Iowa also are rejecting the expansion in cost and Federal power by refusing the Trojan horse that is the Medicaid attempted mandate.

Other states leaning toward refusing the Federal government’s attempted mandate include New Jersey, Virginia, and Georgia.

Health Insurance vs Health Welfare

The question of universal health coverage is one well worth discussing at the national level; the goal of universal coverage is to make health care services ubiquitously available, for rich and poor alike.  It’s a laudable goal.  However, in order to have a coherent discussion, it’s necessary to review the terms of the subject.

Too often, though, the discussion assumes that health care and health insurance are so much a part of each other that they cannot be had separately.  This is wrong.  Health care is what you get from your doctor or hospital.  You’re getting treatment for a medical condition, advice about how to treat a medical condition, advice about how to avoid getting a medical condition.  In return for these health care services, someone pays the doctor or hospital money.

Many people pay for these services with cash out of their own pocket, and many more would prefer to do so, were they given the choice.

Others—the vast majority of Americans (I’m eliding the free riders in the market)—pay for these services by buying something we call insurance: they pay a periodic premium to a health insurance provider for a policy that obligates the insurance provider to pay (most of) the costs of a medical condition should that condition actually arise at some time in the future.  The insurance company makes its money by selling lots of such policies on the bet that few enough people actually will incur the covered condition within a given time frame that the aggregated premiums over that time frame will more than cover the actually required medical payouts.  That’s what insurance is, including health insurance: it’s one person transferring part, or all, of a risk of something untoward happening to him to another—an insurance company, for instance—in return for an agreed upon fee.  For that fee, the entity accepting the risk, or the agreed part of it, agrees to cover the cost of that untoward event should it actually occur, with the aggregated fees over lots of such agreements, being enough to cover the required cost payouts.

Health care and health insurance, thus, are entirely separate industries: one is the actual provision of services, and the other is simply a means of paying for those services.

But for the risk transfer, or insurance, industry to work, though, two things must occur: the first is that the fees charged for the risk assumptions must be voluntarily agreed to between the two parties to the risk transfer.  If the fees are dictated to one or the other side, without any market flexibility, they run a very strong risk of being too high for the one party to afford, or too low for the other party to be able to cover the agreed costs.

The other thing that must occur is that the fees must be consistent with the risk assumed.  To take an over-simplified example, if a man has a risk of a medical condition that costs $1,000 to treat, and the likelihood of his incurring that condition within the next year is very high, and he wishes to transfer 80% of that risk to an insurance company (i.e., get the company to pay $800 should the condition arise), then the insurance company must be able to charge a premium that, over the course of a year, sums to $800 in order to break even.  Of course, if the insurance company were to sell that same policy to lots of folks subject to that medical condition, actuarially it’s highly unlikely that all of them—even with the same risk—will incur that condition in the same year.  This would allow the insurer to sell the policy for a lower premium than it could if the customer population were limited to that original single person.

With lots of companies in the market selling policies for a given coverage, competition ensures that a single company does not abuse single-company monopoly power and overcharge.  Nation-wide marketability of that policy both enhances the competition and expands the customer base with the insured-against condition, thus increasing downward pressure on the policy’s premium—the risk transfer fee.  This downward pressure makes insurance more accessible to more people.

The actual situation facing us, though, is a market structure of government limits on the policies offered, government limits on the premiums allowed to be charged, and two critical government mandates: every individual must buy health insurance—must buy those government-limited policies—and every insurer must accept all customers.  There is little to no market flexibility—or pressure—to structure coverages to match the risks being transferred, nor is there much flexibility to match the fees charged to the risks being transferred.  This combination of government limits and mandates is a health welfare program of universal coverage.

My own view is that universal coverage is unnecessary, never minding its laudability, and that health welfare (or welfare generally) is actively suboptimal when it’s the first resort, rather than the last resort after market forces have taken their effect on prices and availability.

Because the welfare program’s risks and fees do not match, and because competition among health insurance purveyors is limited, inefficiencies will rapidly develop in the form of coverage payouts being too great for the premium income in some areas and too little for the premium income in others, with a strong bias toward too little premium income.  While companies’ desires to charge more, including “too much,” would be heavily constrained by competitive pressure, the government’s bias is to hold down costs to its voters, without regard in the short term to the market consequences, and the bias is unchecked.

This drives the welfare program to one or more of three outcomes: the insurance companies must prevail on the regulatory authorities to raise premiums, they must get tax dollar help from the government to make up the shortfall, or they must stop providing that insurance coverage.  All of these represent stark cost increases to the insurees: either they pay higher premiums today (even for conditions for which they do not want coverage or whose risks are very low, because those conditions are included in the required coverage allowed to be sold), their taxes go up tomorrow, or next week they lose their insurance coverage altogether until they move to another company—if one is left in business.  Indeed, this is the rationale for the Individual Mandate requiring everyone to buy insurance: all those extra premiums, hopefully from young, healthy Americans who aren’t likely to need a payout (and who also aren’t likely to want to buy the coverage) are intended to provide those extra monies and so avoid any of the three outcomes.

Some Thoughts on the Dissent of the Four

While I agree with much of the thrust of the Four Dissenters’ argument, and I believe it to be better argued than Chief Justice John Roberts’ concerning the Commerce Clause (with which they agreed) and his argument concerning the Taxing Clause (with which they disagreed), they proceed from a false premise, and so their entire argument must fail.  I’ll get to that false premise in a bit.  First though, I want to look at their arguments concerning those two clauses.  I’m deliberately eliding the matter of the Medicaid expansion, staying strictly with the Individual Mandate.  The Four Dissenters’ opinion, and the entire ruling, with all dissents, can be read here.

The Dissenters began their argument with this summary of the question:

This case is in one respect difficult: it presents two questions of first impression. The first of those is whether failure to engage in economic activity (the purchase of health insurance) is subject to regulation under the Com­merce Clause. ….

They opened their actual dissent with this [citations generally omitted in this post]:

What is absolutely clear, affirmed by the text of the 1789 Constitution, by the Tenth Amendment ratified in 1791, and by innumerable cases of ours in the 220 years since, is that there are structural limits upon federal power—upon what it can prescribe with respect to private conduct….  Whatever may be the conceptual limits upon the Commerce Clause…, they cannot be such as will enable the Federal Government to regulate all private conduct….

… The striking case of Wickard v. Filburn,…which held that the economic activity of growing wheat, even for one’s own consumption, affected commerce sufficiently that it could be regulated, always has been regarded as the ne plus ultra of expansive Commerce Clause jurispru­dence. To go beyond that, and to say the failure to grow wheat (which is not an economic activity, or any activity at all) nonetheless affects commerce and therefore can be federally regulated, is to make mere breathing in and out the basis for federal prescription and to extend federal power to virtually all human activity.

As for the constitutional power to tax and spend for the general welfare: The Court has long since expanded that beyond (what Madison thought it meant) taxing and spending for those aspects of the general welfare that were within the Federal Government’s enumerated powers, see United States v. Butler….

And they concluded, in this opening salvo:

The Act before us here exceeds federal power…in mandating the purchase of health insurance….

Then they began their explanation of their dissent.  First quoting the Commerce Clause, they then noted of the Individual Mandate

If this provision “regulates” anything, it is the failure to maintain mini­mum essential coverage.  One might argue that it regu­lates that failure by requiring it to be accompanied by payment of a penalty.  But that failure—that abstention from commerce—is not “Commerce.”  To be sure, purchas­ing insurance is “Commerce”; but one does not regulate commerce that does not exist by compelling its existence.

It doesn’t get any clearer than that.  Chief Justice Roberts noted this, as well, in his Commerce Clause unconstitutionality ruling.

In Gibbons v. Ogden,…Chief Justice Marshall wrote that the power to regulate com­merce is the power “to prescribe the rule by which commerce is to be governed.”  That understanding is consistent with the original meaning of “regulate” at the time of the Constitution’s ratification, when “to regulate” meant “[t]o adjust by rule, method or established mode[.]”

This is a point Justice Ruth Bader Ginsburg failed to grasp in her dissenting concurrence.  The Dissenters drove the point home with this:

We do not doubt that the buying and selling of health insurance contracts is commerce generally subject to federal regulation.  But when Congress provides that (nearly) all citizens must buy an insurance contract, it goes beyond “adjust[ing] by rule or method,…or “direct[ing] according to rule”…; it directs the creation of commerce.

Then the Dissenters proceeded to the nature of imposing a requirement to behave in a particular way, which is Constitutionally permitted (by Court precedent) only when there is no more efficient way of achieving the desired end.  The fallacy of the government’s position that the Individual Mandate is Necessary and Proper was demonstrated by the ease with which the Dissenters offered simple, less intrusive, alternatives to the command to purchase [emphasis added].

…Congress might protect the imperiled industry by prohibiting low-cost competition, or by according it preferential tax treatment, or even by granting it a direct subsidy.

Here, however, Congress has impressed into service third parties, healthy individuals who could be but are not customers of the relevant industry, to offset the undesir­able consequences of the regulation.

They emphasize the point [emphasis added, again]:

…the Commerce Clause, even when supplemented by the Necessary and Proper Clause, is not carte blanche for doing whatever will help achieve the ends Congress seeks by the regulation of commerce.  And…the scope of the Necessary and Proper Clause is exceeded not only when the congressional action directly violates the sovereignty of the States but also when it violates the background principle of enumerated (and hence limited) federal power.

It’s like they were lecturing first-year law students.  In a very real sense, they seem to have been:

The Government was invited, at oral argument, to suggest what federal controls over private conduct (other than those explicitly prohibited by the Bill of Rights or other constitutional controls) could not be justified as necessary and proper for the carrying out of a general regulatory scheme. … It was unable to name any.

The Four Dissenters then moved on to another of the government’s justifications for the Individual Mandate.

The Government’s second theory in support of the Individual Mandate is that §5000A is valid because it is actually a “regulat[ion of] activities having a substantial relation to interstate commerce,…i.e.,…activities that substantially affect interstate commerce.

Here the Dissenters could have struck a stout blow for judicial restraint and argued for a restoral of the Commerce Clause’s return to its original meaning, pre-Jones & Laughlin and Wickard, but they failed to do so.  Instead, they accepted the (false) premise of these two cases—the false premise of the government’s case—and so invalidated their entire argument, even though they had come to the more-or-less right ruling.  They should have challenged the government’s premise that “substantially affect interstate commerce” is the basis from which to proceed.  I’ll expand on this point later.

Instead, they took the government’s premise seriously, and argued on that basis.  Given that premise, the Dissenters’ argument is sound, however.

…the basic idea is that §5000A regulates “the way in which individuals finance their participation in the health-care market.” …

The primary problem with this argument is that §5000A does not apply only to persons who purchase all, or most, or even any, of the health care services or goods that the mandated insurance covers.  Indeed, the main objection many have to the Mandate is that they have no intention of purchasing most or even any of such goods or services and thus no need to buy insurance for those purchases.

Returning to the concept of inactivity as active participation, they repeated their earlier argument:

…the decision to forgo participation in an interstate market is not itself commercial activity (or indeed any activity at all) within Congress’ power to regulate.  It is true that, at the end of the day, it is inevitable that each American will affect commerce and become a part of it, even if not by choice.  But if every person comes within the Commerce Clause power of Congress to regulate by the simple reason that he will one day engage in commerce, the idea of a limited Government power is at an end.

And

Wickard v. Filburn has been regarded as the most ex­pansive assertion of the commerce power in our history. A close second is Perez v. United States,…which upheld a [Federal] statute criminalizing the eminently local activity of loan-sharking.  Both of those cases, however, involved commercial activity.  To go beyond that, and to say that the failure to grow wheat or the refusal to make loans affects commerce, so that growing and lending can be federally compelled, is to extend federal power to virtu­ally everything.

Having dispensed with the constitutionality of the Individual Mandate under the Commerce Clause, the Dissenters could have stopped at there, and been fine.  However, they moved on to the government’s secondary argument of “it’s a tax and permissible under the Taxing Clause.”

They began with an early exposure of the government’s pseudo-logic:

The Government contends, however, as expressed in the caption to Part II of its brief, that “THE MINIMUM COVERAGE PROVISION IS INDEPENDENTLY AUTHORIZED BY CONGRESS’S TAXING POWER.” … The phrase “independently authorized” suggests the existence of a creature never hitherto seen in the United States Reports: A penalty for constitutional purposes that is also a tax for constitutional purposes.  In all our cases the two are mutually exclusive.  The provi­sion challenged under the Constitution is either a penalty or else a tax.

And

It is important to bear this in mind in evaluating the tax argument of the Government and of those who support it: The issue is not whether Congress had the power to frame the minimum-coverage provision as a tax, but whether it did so.

It is well that the Dissenters emphasized this; this is a point the Roberts completely missed in his desperation to find a way, any way, under his application of the “fairly possible” doctrine, to count the Individual Mandate constitutional under the Taxing Clause.  They note one of the critical limits on judicial power that five Justices failed to heed:

…we cannot rewrite the statute to be what it is not. “‘”[A]lthough this Court will often strain to construe legislation so as to save it against constitutional attack, it must not and will not carry this to the point of perverting the purpose of a statute…” or judicially rewriting it.'” … In this case, there is simply no way, “without doing violence to the fair meaning of the words used,”…to escape what Congress enacted: a mandate that individuals maintain minimum essential coverage, enforced by a penalty.

And

Our cases establish a clear line between a tax and a penalty: “‘[A] tax is an enforced contribution to provide for the support of government; a penalty…is an exaction imposed by statute as punishment for an unlawful act.'”

And

…we have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax.  We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.

And just to saucer and blow it,

…the question is, quite simply, whether the exaction here is imposed for violation of the law.  It unquestionably is.

They concluded by repeating an earlier argument:

…to say that the Individual Man­date merely imposes a tax is not to interpret the statute but to rewrite it.

Having forcefully dispensed with the government’s position, and effectively dissented from the majority opinion on the Taxing Clause constitutionality of the Individual Mandate, the Dissenters considered themselves done here.  But as I wrote earlier, they committed a grave error and failed their opportunity for true judicial restraint, instead continuing the judicial activism that underlies the government’s—and Roberts’ and his other colleagues’—fundamental argument.

Jones & Laughlin held that

Although activities may be intrastate in character when separately considered, if they have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens and obstructions, Congress cannot be denied the power to exercise that control.

Wickard held that a (farm) product produced for personal consumption on the private property of the consumer was subject to Federal control under the Commerce Clause both for the reason of its claimed effect on interstate commerce and because that effect upset the government’s policy of controlling prices in the economy.

Here is the false premise to which I alluded earlier.  The Commerce Clause’s allocation to Congress of the capacity to ensure that all the States played by the same rules in their mutual commerce in no way authorized that Congress to reach inside any State to govern wholly local activities—vis., production in a local factory or farm—much less to reach inside an individual citizen of any State and dictate to that citizen what he might or might not do.

The “substantial effect” meme is a purely speculative one.  That factory or farm that produces goods for consumption solely within a State is not engaging in interstate commerce, even if it is producing goods substantially like those of another factory or farm which does sell for interstate consumption.  It can have no effect on interstate commerce.  Moreover, even were it to have an effect, that local behavior is beyond the Congress’ reach, rather tautologically, in Congress’ efforts to ensure that interstate commerce is regular, that all States function within a common set of requirements.

The fact that production and consumption decision—or today the decision not to consume (or produce)—is made by a private citizen also places that decision, and the related subsequent behavior, beyond the reach of the Federal government.  Justice James Clark McReynolds, in his dissent in Jones & Laughlin exposed the error of the Court’s opinion:

We are told that Congress may protect the ‘stream of commerce’ and that one who buys raw material without the state, manufactures it therein, and ships the output to another state is in that stream.  Therefore it is said he may be prevented from doing anything which may interfere with its flow.

This, too, goes beyond the constitutional limitations heretofore enforced.  If a man raises cattle and regularly delivers them to a carrier for interstate shipment, may Congress prescribe the conditions under which he may employ or discharge helpers on the ranch?  The products of a mine pass daily into interstate commerce; many things are brought to it from other states.  Are the owners and the miners within the power of Congress in respect of the latter’s tenure and discharge?  May a mill owner be prohibited from closing his factory or discontinuing his business because so to do would stop the flow of products to and from his plant in interstate commerce?  May employees in a factory be restrained from quitting work in a body because this will close the factory and thereby stop the flow of commerce?  May arson of a factory be made a federal offense whenever this would interfere with such flow?  If the business cannot continue with the existing wage scale, may Congress command a reduction?  If the ruling of the Court just announced is adhered to, these questions suggest some of the problems certain to arise.

And if this theory of a continuous ‘stream of commerce’ as now defined is correct, will it become the duty of the federal government hereafter to suppress every strike which by possibility it may cause a blockade in that stream?

By the time of Wickard, Roosevelt’s court-packing effort had succeeded, and there was no one to speak for Americanism and individual liberty.  As I said, here was the Four Dissenters’ chance, and they passed it by.

Progressive Behavior

Justice Ruth Bader Ginsburg wrote some real whoppers into her dissenting concurrence with Chief Justice John Robert’s majority opinion that upheld Obamacare in the just published ruling on NFIB v Sibelius.  (Incidentally, the tone and phrasing of her remarks, and of the major dissenting opinion, give credence to the idea that Roberts switched his vote late—a switch in time.)  Here are some excerpts from the Progressive jurist’s opinion.

The provision of health care is today a concern of national dimension, just as the provision of old-age and survivors’ benefits was in the 1930’s.  In the Social Security Act, Congress installed a federal system to provide monthly benefits to retired wage earners and, eventually, to their survivors.

But this is a distortion, an…inaccuracy…, and a revealing blind spot in her own understanding of history.  What the New Deal Congress enacted was a program of supplemental, not of replacement income, for the retired, who were expected to be supported by their families, and for a then-actuarial life expectancy of some 5-7 years in retirement.  Today’s Obamacare is intended to provide—entirely—”health care” from cradle to grave, some 85 years today.  And Justice Ginsburg perpetuates the erroneous, but careful, combination of health care and health “insurance” into the same thing.

Then she continued the above:

According to the Chief Justice the Commerce Clause does not permit that preservation [of an alleged central role for private insurers]. This rigid reading of the Clause makes scant sense and is stunningly retrogressive….

Two things here.  In the first place, that preservation should be wholly irrelevant, since there should be no central role to be played in the government’s health “care” program, since there should be no such program.  Withal, that’s not a constitutional question, but a political one.

The real problem is the mindset Ginsburg exposes with that “rigid reading” canard.  What other reading is possible for a document that is supposed to be changeable only by the people through a formal amendment process, and not changed at convenience through judicial creative “interpretation” to support whatever goal falls to hand?

Ginsburg plowed on:

The Chief Justice’s crabbed reading of the Commerce Clause harks back to the era in which the Court routinely thwarted Congress’ efforts to regulate the national economy in the interest of those who labor to sustain it….

And

The Chief Justice’s novel constraint on Congress’ commerce power gains no force from our precedent and for that reason alone warrants disapprobation….

Rather than “crabbed” or “novel,” this is an entirely accurate reading.  The Commerce Clause permits the Congress only to regularize the commerce among the several States, not to centrally manage the entire economy—for any purpose.  And there’s that mindset, even more so: according to Ginsburg, the world began with Jones & Laughlin and Wickard.  She carefully elides the fact that these two cases had themselves overturned 120 years of precedent and case law under the Commerce Clause that had held, explicitly, that commerce that occurred wholly within a State was beyond the reach of the Federal government to regulate, and that such trivial things as acts of production or thinking about a transaction were not even commerce, no matter the decision taken or where the produce might ultimately be destined.

Then she wrote this:

The Chief Justice also calls the minimum coverage provision an illegitimate effort to make young, healthy individuals subsidize insurance premiums paid by the less hale and hardy.  This complaint, too, is spurious….

But then she acknowledges, just three sentences later,

Those who have insurance bear the cost of this guarantee.

Her internal contradiction shows her disingenuousness.  “Those who have insurance” include the “young, healthy individuals” who are Dragooned by Obamacare into buying health “insurance” coverage they do not need and would not otherwise buy.  This Dragooning, of everyone, was justified explicitly as being in order to subsidize insurance purchases by “the less hale and hardy.”

And there’s this plain, Progressive meme:

…the Chief Justice plows ahead with his formalistic distinction between those who are “active in commerce,” and those who are not….

Now she’s channeling Judge Kessler, who ruled in Mead that our private decisions—our thoughts—are regulable by the government under the Commerce Clause.

She also writes, concerning her other colleagues’ joint dissent, that they are

asserting, outlandishly, that if the minimum coverage provision is sustained, then Congress could make “breathing in and out the basis for federal prescription[.]”

This is a dangerously naïve, yet typically Progressive, position to hold about a government.  No government of theirs would ever get so out of hand.

Obamacare, the IRS, Privacy, and Whose Money Is It, Anyway?

Here is a partial list, courtesy of Elizabeth MacDonald of Fox Business, of the additional privacy invasions in which Obamacare requires the IRS to engage, in order to ensure that you, “private” citizen, are complying with the Progressive Government’s determination of what is appropriate for you.  Understand, you’ve lost the right to determine what level or type of health insurance coverage is appropriate—the Progressive Government will determine that for you.  You’ve also lost the right to determine what level of coverage is affordable according to your own—or your small (or large) business’ estimate—expense pattern and what you’ve decided you’re willing to pay—the Progressive Government will determine that for you.

According to the Taxpayer Advocate Office, we erstwhile private citizens must tell the government’s man, under Obamacare,

  • our insurance plan information, including who is covered under the plan and the dates of coverage;
  • costs of [our] family’s health insurance plans;
  • whether [any of us] had an offer of employer-sponsored health insurance;
  • cost of employer-sponsored insurance;
  • whether [any of us] received a premium tax credit;
  • whether [any of us] has an exemption from the individual responsibility requirement.

Moreover, the IRS under Obamacare is requiredauthorized to talk with folks about us with whom they never before had routine contact—all to ensure that we’re “paying our fair share.”  This list includes

  • new state-run insurance exchanges;
  • employers;
  • insurance companies;
  • government insurance programs.

Your W-2 no longer is enough; now the IRS will be quizzing your employer in great detail.  The fact that you do, or don’t, have health insurance coverage no longer is a private matter; the Progressive Government will be quizzing your insurer.

On top of this, if we must pay a penaltytax because we don’t have the Progressive Government’s definition of “adequate” coverage, that tax is designed to be the maximum collectable, not the minimum.  The tax is either a fixed dollar amount, or a percentage of our income above the filing threshold, whichever is greater.  Even common criminals, on conviction, don’t automatically get the maximum sentence in every case.  But then, your money really isn’t yours, anyway—it’s the property of the Progressive Government; it’s just ensuring it gets every bit of its property.  And the criteria for determining the size of our tax?  They include more destruction of our privacy:

  • the IRS determines our “household income,” the sum of the incomes of everyone living under our roof
  • the IRS will demand to know the insurance coverage of each person living under our roof.

If anyone is lacking proper insurance, you get the tax.

It’s just as bad for the small businesses that we “private” citizens run, now for the benefit of government rather than for our own purposes.  Here’s an example of the penaltytax “your” small business must pay.

Businesses with more than 50 employees are required under Obamacare to provide “adequate” health insurance coverage for all of their employees.

The tax is $2,000 per employee, but the business must first knock out from the math the first 30 workers—part-timers don’t count.

Example: If you have 51 full-time employees and 15 part-time employees throughout the year, and one full-time employee is receiving a tax credit to help them buy health insurance [because you’re not providing “adequate,” “affordable” insurance for that employee], your business will have to pay:

51 (the number of full time employees) – 30 (the first 30 employees are excluded)

21 x $2,000 = $42,000

Notice that: one employee is getting short-changed (according to the Progressive Government), so we pay the penalty on a multiplicity of employees.

Think about the effect this will have on hiring.

Read Ms MacDonald’s entire article to see a fuller the list of abuses Obamacare heaps on what used to be “our” businesses.

Remember all of this in November.