Federalism and National Health Reform, Part 1

This is a TIE-U post associated with Nick Bagley’s Health Reform and Its Legal Controversies (Michigan Law 866, Fall 2015). For related posts, see the course intro.

In his wonderful book “Inside National Health Reform,” John McDonough canvasses the century of failed attempts to achieve universal insurance coverage. Roosevelt, Truman, Johnson, Carter, Clinton—none of them could pull it off. Against that dismal backdrop, the 2010 enactment of the Affordable Care Act ranks as a minor miracle.

But why did progressives push so hard for national health reform? Why not attempt, instead, to replicate their 2006 success in Massachusetts?

For a loose analogy, consider the march to gay marriage. When Massachusetts eliminated the prohibition on same-sex marriage in 2003, advocates didn’t turn immediately to the Supreme Court. They built the groundwork for a national strategy by winning court victories and electoral battles at the state level. By the time the Supreme Court decided Obergefell v. Hodges, 35 states allowed same-sex marriage, 11 through popular referendums or through their legislatures.

Contrast that to the ACA, where the score was a lopsided 48 to 2 (Massachusetts and Hawaii) against near-universal coverage. With that record, why did progressives think the time was ripe to push for a national solution?

Here’s another way to think about the question. Why did Congress need to get involved at all? At the core of our federalist system is the principle that the states should take the lead unless there’s a need for federal action. That way, the states can tailor their laws to suit the diverse preferences of their citizens. Texans might prefer lower taxes even if it means worse roads and schools; Californians may strike a different balance.

Why not with health insurance, too? Back in 1996, fresh off the defeat of the Clinton reform plan, Jerry Mashaw and Ted Marmor observed that

[t]here is unlikely to be any single system that either is or appears “best” for the whole of these United States. Regions, states, even localities, differ in their demographic characteristics, political cultures, existing styles of medical practice, and appetites for medical services. What is both practical and desirable varies enough to make federalist variation both normatively attractive and politically wise as an alternative to national stalemate.

As they note, the most common justifications for federal intervention don’t apply to health reform. Federal standards make especially good sense, for example, when states can impose externalities—costs that they don’t bear—onto other states. That’s one reason we have national laws governing air and water pollution: to prevent states from sending their pollution across state lines.

That justification doesn’t hold when it comes to health reform. If New York declines to adopt near-universal coverage, it’s hard to see how that really harms Connecticut or New Jersey. We can easily accommodate a patchwork of state insurance laws. Indeed, we already do. In the McCarran-Ferguson Act, Congress clarified that the states—not the feds—have primary responsibility for regulating their own insurance markets. The states have in turn adopted widely varying rules to regulate health insurance.

Setting externalities to one side, federal intervention is sometimes appropriate when the states are locked in a collective-action problem. Imagine, for example, that a bunch of states wanted to adopt a guaranteed minimum income for their residents (and were willing to bear the associated tax burden). Any state that moved first, however, would become an enormous magnet for the unemployed. Faced with that risk, no state would adopt the policy, even though lots of states preferred it. Federal law could perhaps break the logjam.

You can tell a story like that about health care. Maybe the states were unwilling to adopt near-universal coverage for fear of attracting chronically ill patients. Massachusetts’s experience, however, doesn’t bear out the concern. People have lots of reasons to live where they live; the evidence suggests they don’t lightly pick up stakes and move, even to get health insurance. Prior to the ACA, we tolerated extraordinary differences in the coverage rules governing state Medicaid programs. Low-income people didn’t flee Mississippi in droves just because Minnesota’s Medicaid program was more generous.

“Why not, then,” Mashaw and Marmor asked, “let states choose how to reform American medicine?” That’s a hard question that deserves a good answer. Tomorrow, I’ll offer my best stab at one.


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