Is the Health Care Legislation Constitutional?

Rich's post on the possible unconstitutionality of the health care legislation has stirred me from my bad-guest-blogger torpor.  (Well, that, and the completion of those darned footnotes.)   I want to address (in my next post or two)  Rich's interesting claim that conditional taxation might exceed Congress's constitutional power to tax.  First, though, we need to ask whether we even need to ask that question.

The main issue is the law's requirement that individuals buy insurance, also known as the "individual responsibility" requirement ("IRR").  The power to tax is only needed as a basis for the IRR if the commerce power is insufficient.  I am convinced by Jack Balkin that the congressional power to regulate commerce does (as both descriptive and normative matter) reach requirements that individuals acquire insurance coverage. 

Randy Barnett et al. and Ilya Somin argue otherwise, but they overlook the necessary and proper clause.  If one concedes that Congress has the power to prohibit insurers from discriminating against those with pre-existing conditions, then the mandate that individuals purchase follows as a matter of economic necessity.  Without IRR, the non-discrimination rule will be prohibitively expensive for insurers, and also for the government that must subsidize issuance of insurance to risky populations.  (Because otherwise healthy individuals will simply wait until they're sick to buy insurance.)   After the jump, some counter- and counter-counter-argument.

Of course, it's possible to push back against my premises.  Ilya and Randy would argue that Congress lacks the power to regulate intra-state insurance contracts, or that the necessary & proper clause cannot be invoked in support of Congress' purposes rather than powers (for more on that one, see David Engdahl's 1994 article "The Spending Power," 44 Duke L.J. 1).   I don't think either of these claims represent either current law or a likely direction for future law (as both Randy and Ilya forthrightly acknowledge), since they would both represent quite radical breaks from current doctrine, and would imperil big chunks of federal regulation.

One also might suggest, though, that these kinds of considerations could nudge the law towards more demanding review of the policy basis for what makes a use of federal law "necessary."  In the case of the mandate, the argument might be: "Hey, this is the same as a tax on healthy people to pay for coverage for poor people.  Why doesn't Congress just do that, instead of forcing people to enter into contracts they don't want?"  Put aside for now whether even that tax would be constitutional.  Are there policy reasons for preferring a mandate to a simple redistributive tax?

Yep.  Here's a few:

1.  We think insurance companies would waste money on recruiting the healthy/discouraging the sick, and the mandate reduces their incentive to do that.

 

2.  Similarly, there are economies of scale in having more people insured (as opposed to having only a tax on the uninsured).

 

3.  The healthy as a group are more sophisticated consumers and, if forced to buy coverage, will do a better job holding down costs.

 

4.  There's imperfect enforcement of the non-discrimination rule, and we think many of the healthy will under-insure.

 

5.  Enforcement of the non-discrimination rule is costly, and that cost is mitigated under a mandate.

 

6.  The economic incidence of the mandate/penalty is different than some other kind of funding system, and this difference in incidence either a. has desirable distributive consequences or b. reduces total deadweight losses.

 

7.  There are pooling benefits to the mandate that reduce total cost in a way that a simple tax would not.    

 

Thoughts, anyone?