• Misunderstanding insurance risk pooling at the oral argument

    The signature accomplishment of the ACA was to reverse the Republican trend towards risk pool segmentation (high-deductible health plans, “individual responsibility,” et al.) but to broadly consolidate health insurance risk pools by prohibiting most underwriting. The MCP litigation is designed to kill this key feature that spreads health insurance risk more evenly across the population.

    On Tuesday, several Republican Justices and the Solicitor General displayed remarkably limited understanding of the nature of health insurance risk pools. If a healthy person stays out of the pool, the average costs for those left in the pool are higher. That’s not true for underwritten insurance products (such as life or auto). Justice Alito gave a burial insurance hypothetical:

    JUSTICE ALITO: All right. Suppose that you and I walked around downtown Washington at lunch hour and we found a couple of healthy young people and we stopped them and we said: You know what you’re doing? You are financing your burial services right now because eventually you’re going to die, and somebody is going to have to pay for it, and if you don’t have burial insurance and you haven’t saved money for it, you’re going to shift the cost to somebody else. Isn’t that a very artificial way of talking about what somebody is doing? (7-8)

    The SG failed to say that burial policies are underwritten by age and health status. Instead, he said the Red States had agreed that it was constitutional to require that people buy health care only through insurance (ie, Congress could ban self-pay or cash health care purchases). Alito went right back to burial insurance, but the SG only talked about cost shifting, not underwriting:

    JUSTICE ALITO: I don’t see the difference. You can get burial insurance. You can get health insurance. Most people are going to need health care, almost everybody. Everybody is going to be buried or cremated at some point.

    GENERAL VERRILLI: Well, one big difference -­

    JUSTICE ALITO: What’s the difference?

    GENERAL VERRILLI: One big difference, Justice Alito, is the — you don’t have the cost shifting to other market participants. Here -­

    JUSTICE ALITO: Sure you do, because if you don’t have money, then the State is going to pay for it or some -­

    GENERAL VERRILLI: But that’s different.

    JUSTICE ALITO: A family member is going to pay for it.

    GENERAL VERRILLI: That’s a difference, and it’s a significant difference. That in this situation, one of the economic effects Congress is addressing is that the — there — the many billions of dollars of uncompensated costs are transferred directly to other market participants. It’s transferred directly to other market participants because health care providers charge higher rates in order to cover the cost of uncompensated care, and insurance companies reflect those higher rates in higher premiums, which Congress found translates to a thousand dollars per family in additional health insurance costs.

    JUSTICE ALITO: But isn’t that really a small part of what the mandate is doing? You can correct me if these figures are wrong, but it appears to me that the CBO has estimated that the average premium for a single insurance policy in the non-group market would be roughly $5,800 in — in 2016. Respondents — the economists who have supported the Respondents estimate that a young, healthy individual targeted by the mandate on average consumes about $854 in health services each year. So the mandate is forcing these people to provide a huge subsidy to the insurance companies for other purposes that the Act wishes to serve, but isn’t — if those figures are right, isn’t it the case that what this mandate is really doing is not requiring the people who are subject to it to pay for the services that they are going to consume? It is requiring them to subsidize services that will be received by somebody else.

    GENERAL VERRILLI: No, I think that — I do think that’s what the Respondents argue. It’s just not right. I think it — it really gets to a fundamental problem with their argument.

    JUSTICE GINSBURG: If you’re going to have insurance, that’s how insurance works. (8-10)

    Thank goodness for Ginsburg, coming to the rescue here. Yes, she is right – that is exactly how insurance works. But the SG didn’t take the offered help. He responded with adverse selection death spirals:

    JUSTICE GINSBURG: If you’re going to have insurance, that’s how insurance works.

    GENERAL VERRILLI: A, it is how insurance works, but, B, the problem that they — that they are identifying is not that problem. The guaranteed issue and community rating reforms do not have the effect of forcing insurance companies to take on lots of additional people who they then can’t afford to cover because they’re — they tend to be the sick, and that is — in fact, the exact opposite is what happens here. The — when you enact guaranteed issue and community rating reforms, and you do so in the absence of a minimum coverage provision, it’s not that insurance companies take on more and more people and then need a subsidy to cover it, it’s that fewer and fewer people end up with insurance because their rates are not regulated. Insurance companies, when — when they have to offer guaranteed issue and community rating, they are entitled to make a profit. They charge rates sufficient to cover only the sick population because health -­ (10-11)

    At this point, Kennedy, the ostensible swing vote, interrupted to ask about the “heavy burden of justification” when “you are changing the relation of the individual to the government.”  Not a good sign.

    A bit later, Scalia mistakes economies of scale for insurance pooling in his “car mandate hypo,” but the SG misses it entirely and mistakenly denies the risk pooling argument:

    JUSTICE SCALIA: Mr. Verrilli, you could say that about buying a car. If people don’t buy cars, the price that those who do buy cars pay will have to be higher. So, you could say in order to bring the price down, you’re hurting these other people by not buying a car.

    GENERAL VERRILLI: That is not what we’re saying, Justice Scalia.

    JUSTICE SCALIA: That’s not — that’s not what you’re saying.

    GENERAL VERRILLI: That’s not — not -­

    JUSTICE SCALIA: I thought it was. I thought you’re saying other people are going to have to pay more for insurance because you’re not buying it.

    GENERAL VERRILLI: No. It’s because you’re going — in the health care market, you’re going into the market without the ability to pay for what you get, getting the health care service anyway as a result of the social norms that allow — that — to which we’ve obligated ourselves so that people get health care.

    JUSTICE SCALIA: Well, don’t obligate yourself to that. Why — you know?

    Note the “let them die” defense proposed by Scalia. More importantly, the SG failed to point out the key difference between a car mandate and a health insurance mandate:  car mandates and broccoli mandates lower prices through production scale effects, if at all.  Health insurance mandates are not based on scale, but on risk pooling – having healthy people in the pool lowers the average cost. That’s a clear limiting principle.  (See also Austin’s limiting principle for the broccoli mandate).

    Sotomayor was the next Democrat trying to help the government. She clearly outlined the arguments for the SG, but he responded only with adverse selection:

    JUSTICE SOTOMAYOR: General, I see or have seen three strands of arguments in your briefs, and one of them is echoed today. The first strand that I’ve seen is that Congress can pass any necessary laws to effect those powers within its rights, i.e., because it made a decision that to effect — to effect mandatory issuance of insurance, that it could also obligate the mandatory purchase of it. The second strand I see is self-insurance affects the market; and so, the government can regulate those who self-insure. And the third argument — and I see all of them as different — is that what the government is doing — and I think it’s the argument you’re making today — that what the — what the government is saying is if you pay for — if you use health services, you have to pay with insurance, because only insurance will guarantee that whatever need for health care that you have will be covered, because virtually no one, perhaps with the exception of 1 percent of the population, can afford the massive cost if the unexpected happens. This third argument seems to be saying what we’re regulating is health care, and when you go for health services, you have to pay for insurance, and since insurance won’t issue at the moment that you consume the product, we can reasonably, necessarily tell you to buy it ahead of time, because you can’t buy it at the moment that you need it. Is that — which of these three is your argument? Are all of them your argument? I’m just not sure what the -­

    GENERAL VERRILLI: So, let me try to state it this way: The Congress enacted reforms of the insurance market, the guaranteed-issue and community-rating reforms. It did so to deal with a very serious problem that results in 40 million people not being able to get insurance and therefore not access to the health care environment. Everybody agrees in this case that those are within Congress’s Article I powers. The minimum coverage provision is necessary to carry those provisions into execution, because without them, without those provisions, without minimum coverage, guaranteed issue and community rating will, as the experience in the States showed, make matters worse, not better. There will be fewer people covered; it will cost more. Now, the -­

    JUSTICE SOTOMAYOR: So, on that ground -­

    GENERAL VERRILLI: So -­

    JUSTICE SOTOMAYOR: — you’re answering affirmatively to my colleagues that have asked you the question, can the government force you into commerce?

    GENERAL VERRILLI: So — no. No.

    JUSTICE SOTOMAYOR: And there’s no limit to that power.

    GENERAL VERRILLI: No, because that’s -­ that’s the first part of our argument. The second part of our argument is that the means here that Congress has chosen, the minimum coverage provision, is a means that regulates the -­ that regulates economic activity, namely your transaction in the health care market, with substantial effects on interstate commerce; and it is the conjunction of those two that we think provides the particularly secure foundation for this statute under the commerce power. (21-23)

    One final conversation between Roberts, Alito, Scalia and the SG illustrates how they are missing the point of health insurance risk pooling:

    CHIEF JUSTICE ROBERTS: Well, but it’s critical how you define the market. If I understand the law, the policies that you’re requiring people to purchase involve — must contain provision for maternity and newborn care, pediatric services, and substance use treatment. It seems to me that you cannot say that everybody is going to need substance use treatment -­ substance use treatment or pediatric services, and yet that is part of what you require them to purchase.

    GENERAL VERRILLI: Well, it’s part of what the statute requires the insurers to offer. And I think the reason is because it’s trying to define minimum essential coverage because the problem -­

    CHIEF JUSTICE ROBERTS: But your theory is that there is a market in which everyone participates because everybody might need a certain range of health care services, and yet you’re requiring people who are not — never going to need pediatric or maternity services to participate in that market.

    GENERAL VERRILLI: The — with respect to what insurance has to cover, Your Honor, I think Congress is entitled the latitude of making the judgments of what the appropriate scope of coverage is. And the problem here in this market is that for — you may think you’re perfectly healthy and you may think that you’re not — that you’re being forced to subsidize somebody else, but this is not a market in which you can say that there is a immutable class of healthy people who are being forced to subsidize the unhealthy. This is a market in which you may be healthy one day and you may be a very unhealthy participant in that market the next day, and that is a fundamental difference, and you’re not going to know in which -­

    CHIEF JUSTICE ROBERTS: I think you’re posing the question I was posing, which is that doesn’t apply to a lot of what you’re requiring people to purchase. Pediatric services, maternity services. You cannot say that everybody is going to participate in the substance use treatment market and yet you require people to purchase insurance coverage for that.

    GENERAL VERRILLI: Congress has got — Congress is enacting economic regulation here. It has latitude to define essential — the attributes of essential coverage. That doesn’t — that doesn’t seem to me to implicate the question of whether Congress is engaging in economic regulation and solving an economic problem here, and that is what Congress is doing.

    JUSTICE ALITO: Are you denying this? If you took the group of people who are subject to the mandate and you calculated the amount of health care services this whole group would consume and figured out the cost of an insurance policy to cover the services that group would consume, the cost of that policy would be much, much less than the kind of policy that these people are now going to be required to purchase under the Affordable Care Act?

    GENERAL VERRILLI: Well, while they are young and healthy, that would be true. But they are not going to be young and healthy forever. They are going to be on the other side of that actuarial equation at some point. And of course, you don’t know which among that group is the person who’s going to be hit by the bus or get the definitive diagnosis. And that -­

    JUSTICE ALITO: The point is — no, you take into account that some people in that group are going to be hit by a bus, some people in that group are going to unexpectedly contract or be diagnosed with a disease that — that is very expensive to treat. But if you take their costs and you calculate that, that’s a lot less than the amount that they are going to be required to pay. So that you can’t just justify this on the basis of their trying to shift their costs off to other people, can you?

    GENERAL VERRILLI: Well, no, the people in that class get benefits, too, Justice Alito. They get the guaranteed-issue benefit that they would not otherwise have, which is an enormously valuable benefit. And in terms of the — the subsidy
    rationale, I don’t think — I think it’s — it would be unusual to say that it’s an illegitimate exercise of the commerce power for some people to subsidize others. Telephone rates in this country for a century were set via the exercise of the commerce power in a way in which some people paid rates that were much higher than their costs in order to subsidize -­

    JUSTICE SCALIA: Only if you make phone calls. (31-34)

    Despite this performance, it seems like Kennedy gets it nonetheless.

    @koutterson

    Share
    Comments closed
     
    • I’m confused – Alito’s comments seem to suggest he understands insurance very well. Insurance works normally by having participants pay their expected cost in premiums and receive their actual cost in benefits.

      I.e., the healthy guy has an expected cost of $854 (something like a 1% chance of $85,400 and 99% of $0), and so he should pay $854+a bit extra. Forcing the healthy guy to pay more is just a subsidy for the sick guy.

      It seems Ginsburg is actually the one who doesn’t understand how insurance works – this where people with different expected costs pay the same price is not normally a part of insurance markets. In most insurance markets, you pay your expected costs + premium.

      • Alito understands adverse selection, but not risk pooling for health insurance that isn’t underwritten.

        • Can you expand on that Kevin?

          • The words “subsidy” and “redistribution” as we’ve come to understand them politically are completely misplaced in any conversation about how insurance works.

            It is fundamentally a subsidy and a redistribution of wealth. Every year you don’t have a car accident, homeowners claim, or life insurance claim, you’re subsidizing the other people who do. But that’s the point. Because you don’t know when you’re going to need to use the insurance or to what extent, being expected to pay premiums that are directly aligned with your actual risk is financially infeasible.

            Having everybody pay relatively equal premiums into a system of health insurance is a very practical tradeoff given the crushing financial consequences of the alternative. When the suddenly healthy guy does incur $85,000 of health expenses, what dollar amount do we charge him that both covers the risk he presents and doesn’t force him into bankruptcy?

            There is no amount of money that accomplishes both goals.

            • Mike, you are correct that insurance is a transfer of wealth from the 99 healthy people who don’t have an accident to the 1 healthy person who does. That isn’t the issue Alito is raising.

              The issue Alito is raising is an issue of pooling healthy people with sick people. I.e., suppose you have a 1% chance of paying $85k, and I have a 10% chance of paying $85k. In a normal insurance market, your premium would be $850 and mine would be $8500. Similarly, bad drivers pay more for car insurance.

              The subsidy Alito is referring to is making it illegal for insurance companies to simultaneously charge you $850 and me $8500, thereby forcing you to pay about $4800 for insurance which is only worth $850 to you.

              If you want to defend this, do so. But this subsidy is unrelated to risk pooling, and is not some intrinsic fact of insurance.

        • Dear Professor Outterson,

          “Alito understands adverse selection, but not risk pooling for health insurance that isn’t underwritten.”

          Actually, Alito understands the issue of risk pooling very well, and if anything it’s Ginsburg who doesn’t get it.

          Alito’s argument is very simple, and essentially indisputable: a young healthy person would be predicted to consume $854 in services, therefore their premium should be $854, plus some overhead. Instead, in 2016 their premium will be $5800, almost 7 times what would actuarially justified. He repeats this argument later on, in the exchange with Roberts, Scalia, and Verrilli, when he says:

          “If you took the group of people who are subject to the mandate and you calculated the amount of health care services this whole group would consume and figured out the cost of an insurance policy to cover the services that group would consume, the cost of that policy would be much, much less than the kind of policy that these people are now going to be required to purchase under the Affordable Care Act?”

          This is the same argument — when the risk is pooled, some people will be charged a premium much more than they should, based on purely actuarial calculations.

          The thing that’s weird about this whole discussion is that traditionally insurance doesn’t really operate by pooling risk (at least in the sense of the ACA). It operates by discriminating on risk! Successful insurance companies in every field (auto, home, life, etc.) do so by being able to accurately assess risk and charge accordingly. Of course with some things the argument can be made that there are compelling social reasons to abandon such a principle, and this is what Verrilli and Ginsburg should have done, but at that point we’re not really talking anymore about “how insurance works”, at least in terms of pricing.

          • I feel like nobody gets the fact that the young person can pay a penalty, which is likely below the actuarial cost of his care. What’s the problem?

            • Dear Austin,

              Thank you for your reply.

              The issue here is: does Alito understand risk pooling through community rating? That’s the only question I’m trying to resolve. Reading his remarks, it does seem to me that he does indeed grasp what is going on here. Conversely, it’s not clear that Ginsburg has such a strong grasp of what the real issue is with risk pooling, that some people necessarily pay way more than what their actuarial risk profile indicates.

              I agree that people can opt out of coverage and pay a penalty, and in fact it’s startling low, at least until 2016. But this makes the whole discussion even murkier. The administration is arguing that failure to participate in the healthcare market has adverse consequences for interstate commerce — that’s precisely why they are able to invoke the Commerce Clause. But then they give people an option to NOT participate; in fact, by making the penalty so low, they are actually creating an incentive to avoid buying health insurance. I agree that none of the justices or the SG seem to appreciate this, but I also think that if the point had been raised, it would not have been to the advantage of the administration.

              It’s puzzling — why don’t more people opt out of the insurance requirement in Massachusetts? It’s much cheaper to pay the penalty than to buy a policy, by a few thousand dollars. Wouldn’t a “rational” consumer choose to forgo coverage, and then get it when they need it? Either there’s more to the story than this, or people are not entirely rational with their healthcare purchases.

            • Just downstream Whitfield asked why so few opt free ride (to pay the fine) in Mass. I don’t the answer, but it seems he’s correct that few do:

              http://www.washingtonpost.com/blogs/ezra-klein/post/are-free-riders-gaming-massachusetts-health-reform/2012/01/27/gIQAAt0TVQ_blog.html

              /quote/
              Here’s one reason we don’t hear much about free-riding in discussions of Massachusetts health reform: It’s barely happening. About 0.6 percent of Bay State adults under 65 paid a fine for not carrying health insurance in 2009, the most recent year for which data are available from the Massachusetts Department of Revenue. That was back when 96 percent of the population had health insurance, a number that has since risen (as Romney pointed out last night) to 98 percent. The number of free riders would presumably drop as coverage increases, although we’re still waiting for data on 2010 numbers.

              Why don’t many Massachusetts residents free-ride? It could, after all, be the more rational, cheaper choice. Part of it could have to do with the state’s financial well-being: It has the sixth-highest median income in the country, which could make purchasing health insurance more feasible. A lot of Massachusetts advocates, meanwhile, will attribute the high compliance with a “culture of coverage” that grew out of the health-reform effort. Unlike the federal health-reform effort, Massachusetts’ law is popular — another reason that Bay State residents are willing to comply with it.
              /unquote/

              ===
              Mass has a high median income — I’m guessing for the US as a whole more would opt to pay the fine.

    • Thank you

      It’s about time somebody brought up the principles of insurance, even if it is Insurance 101 because you are correct, the Justices simply do not understand the concept of a risk pool.

      And looking at the exchange on burial insurance it is clear this case will be decided by a conglomeration of idiots.

    • I think the trouble the Republican-appointed justices are having is not in understanding risk pooling but seeing the compelling justification for enforcing it.

      Scalia at one point in the transcript notes that the young aren’t stupid in the sense of not understanding that by paying into the system, they are insuring themselves (and thus, since we all need medical care unpredictably this is smart)–its that they have better uses of their money and would rather take the risk. This does raise the cost to everyone else (as the govt claims) but it is not a compelling argument to argue that this magically negates the freedom to take risks (see Alito’s burial insurance analogy where costs are transferred). I think there are flaws within Alito, et al.’s thinking but the fundamental problem is that the argument now being made for the mandate is overall a loser legally (e.g., limiting principle weak or nonexistent).

      The most powerful (and convincing to me) arguments for the mandate (i.e., its a tax, get over it as we tax you to benefit others all the time) can’t be used because of how the ACA was passed. Instead, we are left with weak defenses of the bill that guys like Scalia and Alito feast on.

      • A single national health insurance is undoubtably redistributionist. So is Medicare – the healthy pay for the sick, without any underwriting.

        Medicare for All = clearly constitutional. In effect, the ACA gets attacked by conservatives for being insufficiently single payer.

        • Kevin, I think Medicare for All or Single payer are undoubtedly redistributionist and also legal, and if ACA had gone down that path, the challenges would have been laughed out of court.

          The problem is that the mandate structure with explicit penalty-like framing for not purchasing a private product is very different in form (not in effect) from the preferred alternatives you describe above. Trying this mandate structure with the ACA was a mistake in that it exposed it to legal questioning that will be very difficult to counter. Essentially, the Constituition explicitly allows the federal government to tax but it is dubious that it allows it to force purchase of private products to make the group market function better. With Romneycase, this wasn’t an issue because states are allowed to do those sorts of interventions.

          Basically, I think experts like Dahlia Lithwick at Slate and Linda Greenhouse in the NYT lulled everyone into a false sense of security that this challenge was ridiculous. The Dems should have just called this a tax-financed coverage plan and thus, ended the discussion.

          • I’m a doctor, not a constitutional attorney, but I think you have hit it right on the head. The ACA is floundering because it, in itself, cannot pass the Constitutional tests. Make it a Medicare-like program, based on taxes, run directly by the government and it’s a slam dunk for health care overall. But the question is, will the electorate be in favor of increasing taxes, even though it would mean no more health insurance premiums to pay? That’s probably why Obama and the Congress passed what they did, rather than making this an expansion of Medicare for all–the taxes.

            • Taxes were one issue. The desire to get Republican support was another. As most people are aware, ACA is very similar to what Republicans proposed as an alternative to the Clinton Administration’s plan from the healthcare debates of the 1990’s, and of course, similar to the plan implemented by a Republican governor and presidential candidate. That ACA is anathema now is truly remarkable.

              Republicans may now have some philosophical problems with ACA that they didn’t in the 90’s. Also, there’s the issue of federalism. The Massachusetts plan is a state plan while the ACA would be federal. To the extent that the GOP truly embraces federalism as a guiding principle – and one can debate that given their positions and actions on some issues – this is a legitimate difference and point of contention.

              But that’s only one piece of the puzzle. The other piece is clearly political. If ACA stands, it’s got an even chance of being popular and a victory for Obama and the Democrats. At least in part the GOP is seeking to turn it into a political defeat.

      • You are mistaking this for a rights issue- the government doesn’t need a compelling justification- in fact they have a presumption of constitutionality.

        The issue was really just showing Scalia and his ilk that this was a unique situation that really could not turn into something that would ever be used in any other situation. Once you convinced them of that, they would have little left to complain about. The SG should have explained health insurance, instead he was totally unprepared and his argument was pathetic. The justices don’t trust each other, so I doubt Ginsburg or Kagan will get Scalia to understand what insurance is, and besides, very little of import was placed on the record so the justices have no reason to bend over backwards to make such a finding when politics make striking it down so much more convenient.

    • I do not see what this has to do with constitutionality.

      • Well the issue of Constitutionality was 1. whether Congress could mandate the purchase of something and 2. whether there would be a limit on what Congress could do if it was allowed. Had the SG understood what he was talking about, he could have succinctly articulated that health insurance is unique in that 1. everyone except for a small group with health proxies is already in it and 2. there is nothing else like it except perhaps burial insurance. Thus it’s uniqueness is so obvious that idiotic questions about broccoli really should never have happened.

        The issue should have been- what level of coverage can people be forced to purchase? And the answer would be catastrophic or something along those lines- the insurance should only cover those incidents that happen where a person isn’t going to ask to be allowed to die or be horribly disabled but the cost of not doing that is so exorbitant that they will naturally require insurance. Once the mandate was upheld, that would be the next fight. But no. The SG was a dope and the cause is likely lost.

    • I believe another point the SG failed to articulate is that health care is a market unlike all the others, including food, automobiles, etc. Cars etc., are purchased on a need or want basis. Healthcare (with a few exceptions like plastic surgery), is an adverse purchase if you will. People do not seek treatment for high blood pressure because they want it, they buy it because they have to. Understanding how the markets differ is critical to understanding how and why the markets can or should be regulated.

      The SG also failed abysmally, as you said, to express any understanding of how insurance works.

    • I think there is a conflation here between what risk pooling means for economics and what what some people WANT risk pooling to mean. We may or may not wish to agree that the healthy should subsidize the sick, but risk pooling is the idea that we each face an unknown risk ourselves but whose propensity for a population LIKE US is relatively well understood. Hence the risk can be pooled.

      We can have a good discussion of whether it makes economic sense to pool across different risk groups if the efficiency gains in doing so outweigh the adverse costs to the healthy from doing it, but again I think not everyone is talking about the same thing here.

      • Dear wintercow20,

        “risk pooling is the idea that we each face an unknown risk ourselves but whose propensity for a population LIKE US is relatively well understood. ”

        The way “risk pooling” is being used in this context is that people are grouped with others who are NOT “LIKE US”. In that case, people who are low risk end up paying more than they “ought to” in order to subsidize people who are high risk.That’s the essence of Alito’s objection.

        Of course, you can always argue that that’s the way it should be in a modern, humane society, and in fact I would agree with you. But you should be clear that it is precisely the opposite of aggregating people into a population “LIKE US”.

    • I think the issue here is using insurance to pay for the costs of medical care where the costs are known to be high. All the talk seems to be about the healthy person insuring against future risk.

      But the mandate is about making sure those healthy people subsidize the health care costs of people with pre-existing and expensive conditions. The cost to the healthy 20 something is high because we’re adding to the pool the 20 somethings with congenital heart valve defects, cystic fibrosis and leukemia.

      If you have cystic fibrosis, you don’t need insurance against the risk of getting sick, you need a mechanism to pay for the health care you need. In my personal opinion, insurance is a bad way to do it, but I support the ACA because it was better than the alternative (ie pretend our dysfunctional system is the world’s best.)

    • I’m really happy that someone who understands insurance is blogging. I feel like I’m yelling into a crowd of crazy people. How is it possible that something this big happened and no one who actually understands the subject is involved?? Verrilli’s complete lack of understanding of insurance has to be accidental- presumably if he knew and was trying to avoid seeming like it he wouldn’t have been so obviously flustered. So that means the SG actually took up this case and just… didn’t bother to get acquainted with what he was doing. Mind boggling. Really quite mind boggling.

      • My problem with Verrilli’s arguments isn’t actually the lack of understanding as I think its actually rare to have people who really really understand the HC market. My problem is with the fact that he didn’t even bother to prepare or give fluent answers (or at least they seemed like they were off the cuff) on the obvious questions such as on the limiting factor.

        Conservative and libertarian blogs have been making these arguments since the ACA passed and so he and the legal team had plenty of time to frame a succinct answer to that question. As it was, it derailed the oral questioning when there was no answer to that obvious Kennedy question. That is legal malpractice…

    • I can’t figure our how the justices examples have any merit:

      1. Burial insurance. It is quite possible that if you don’t have burial insurance you simply don’t care whether or not you are buried. I personally don’t care. If they chose to dump my body in the dumpster or put it in the street, that’s fine by me. However there are health and sanitation issues so the government must do something for the benefit of those who are still around. How does this have anything to do with the issue? You may not want health care, but emergency rooms are obligated to give it to you to preserve your life.

      2. How do you know that you will not need substance abuse coverage at some point any more than you know that you will need diabetes or cancer care at some point? Most of us have no intention of needing substance abuse, but it happens anyway. You could become addicted to pain medication even though you had no intention of ever needing it, until the bus hit you. I don’t see how this is different from any other health issue.

      3. Maternity and pediatric care is similar. Many people never intend to have children, but I guess shockingly if you’re a conservative justice, it still happens. The husband is as obligated to pay for such care as is the wife who will receive it. Even if you’re sterile, you still may choose to adopt children and therefore need pediatric care because the responsibility is with the parent, not the child even if the child is receiving the benefit. The entire argument makes absolutely no sense to me. I don’t see why it was not summarily dismissed immediately by the SG.

      The Volt analogy is equally silly. First when a product is not purchased supply and demand usually means that the product’s price goes down, not up. It strikes me as a completely silly argument. It has absolutely nothing to do with the risk pool economics of health care. If you don’t pay for health care, it’s a sure thing that someday I’ll have to subsidize you for this decision. I can’t tell you when, but it’s a sure thing that I’ll have to eventually. I never have to subsidize your non purchase of a car, because I don’t necessarily ever have to buy one. We all have to partake of health care.

      I really don’t see how you can justify this as anything more than playing team republican. You really can’t make a cogent argument that the government can’t regulate health care if they can regulate interstate commerce. It’s kooky.

    • Could it be that a proper understanding of adverse selection and risk pooling is beside the point? Even with these issues thoroughly understood, some justices may believe that the individual mandate still exceeds the constitutional limits of the commerce clause.

    • Before we consider expanding Medicare, consider a few things.
      There are people who believe that since Medicare is funded by taxes, it is the most efficient way of paying for health care.
      I would agree, on a cash-in, cash-out basis.
      But “insurers” need reserves for unexpected claims, and so Medicare has its own “reserve fund,” called a “trust fund.”
      Many people believe that there are no financial repercussions to Medicare, until the trust fund is exhausted.
      At that point, maybe only 80% of the benefits are paid with current taxes.
      So, the government will have to finance the other 20% with new general revenues, which is an immediate budget expense.
      But, this is not true, for since 2008, the cash income has been exceeded by the cash outgo. To finance the shortfall, Treasury interest had to be redeemed from the trust fund. When this occurred, new general revenues were needed AS IF THE TRUST FUND DID NOT EXIST!
      There are enough people out there who believe that using Treasuries to pay for the shortfall has no budget implications.
      In fact, this view has a name: the trust fund perspective. The adherents of this perspective view Medicare Part D as fully funded, even though 75% of the premiums are paid with general revenues, and are an immediate budget expense.
      Of course, if one thinks that Treasury debt is as good as gold, backed by the full faith and credit of the U.S, government, maybe there is some ,method to their madness!
      Don Levit

    • It appears most if not all of the Court plus many of the commentators here do not understand insurance.

      Insurance results in re-distribution, of course it does. Insurance transfers risk from an individual to the risk pool as a whole and when there is an event that causes the insurance to pay off, it transfers funds from the risk pool to the individual who suffered the loss.

      The fact is, insurance is critical for economic activity. It is probably the one of the oldest financial instruments. If people deciding the fate of mandated health care insurance do not understand insurance then you can expect an ignorant decision.

    • I have two questions.

      First, could the individual mandate have been structured as a tax? That is, could the government increase your income tax by an amount equal to the individual mandate, and then issue a tax credit for the same amount if you can document that you have health insurance? I don’t see why this isn’t possible, since the cash flows would basically be the same, and in fact they would be administered by the same agency (IRS). I’ve read a fair amount of commentary where people have suggested that this would have been completely bullet-proof from a constitutional point of view. But I don’t know much about law. So was this really a genuine option?

      Second, assuming that the law could have been structured as a tax, why wasn’t it? I have to believe that the obvious answer is that the administration didn’t want to take the heat for “raising taxes on the middle class” i.e. it was a purely political calculation. If that is the case, and the law is overturned, do the architects of the law deserve criticism for taking such a gamble for the sake of limiting political costs?