The Insurance Industry and the Constitutionality of the Individual Mandate

This last week Kansas's attorney general asked to join the Florida challenge to the individual mandate, making Kansas the 26th state whose attorney generals have have opposed the individual mandate in the affordable care act. (Over at Volokh Conspiracy, Ilya Somin finds this groundswell of state opposition to the constitutionality of the act remarkable and even unprecedented. It's worth noting, however, that attorney generals representing 37 states supported the Violence Against Women Act in 2000. But this even greater display of state consensus on constitutionality did little good. The act was struck down by a conservative Supreme Court majority in United States v. Morrison-- perhaps ironically, on federalism grounds).

To explain why so many state attorney generals have supported the challenge to the individual mandate, it's also worth noting that virtually all of the attorney generals who have challenged the individual mandate are Republicans. Repeal of the health care act has become a Republican political goal, at least in official public rhetoric. And the political battle is being waged on several fronts, including the courts. Although many Republican lawyers and legal scholars (see Charles' Fried's recent op-ed as an example) do not believe the individual mandate is unconstitutional, the constitutionality of the affordable care act increasingly has become a constitutional debate between politicians and political operatives in the two major political parties-- a political controversy, that, not surprisingly, has now been carried to the federal courts for resolution. (Alexis de Tocqueville, please call your answering service.)

At the same time, this Politico story suggests that the health insurance industry has made its peace with the affordable care act, precisely because the law includes an individual mandate.

The reason is simple. The individual mandate was an industry idea designed to give health insurers some 30 million new customers. The insurance industry wanted to avoid a public option, which would have allowed individuals to avoid buying insurance from a private company. (Note that having to buy insurance from a private company is precisely the objection made by conservative opponents of the individual mandate!) Now that the public option has been defeated, and new regulations are being written, the insurance industry is more or less content with the new business opportunities created by the act.

If the individual mandate is struck down, but the rest of the act remains in place, then the insurance industry has all of the new costs created by the popular guaranteed-issue requirements of the act, but none of the cross-subsidies created by the individual mandate. At this point, their business models, far from being assisted by the new legislation, are in serious jeopardy. Indeed, the government might eventually have to respond with something like a different version of the public option designed to absorb a substantial number of high risk individuals, or even (shudder!) move ever closer to a single payer system.

The insurance industry therefore might be happy with striking down the individual mandate only if all of the affordable care act went with it. But this is very unlikely to happen. The individual mandate is severable from the rest of the act, as Judge Hudson's recent opinion recognized, and that is so even if Congress did not include a specific severability provision. Federal courts will be loath to strike down a significant piece of legislation with many different facets simply due to one provision. They will, instead, leave it up to Congress to decide what to do.

And make no mistake, Congress will not repeal the most popular parts of the affordable care act, even if the individual mandate is struck down by the federal courts. The same Congress that finds it hard to cut anything from its budget won't be able to bite the bullet on this one either.

Thus, if total repeal is not on the table, the insurance industry's interest is in keeping the individual mandate and thus opposing any attempt to hold it unconstitutional.

It will therefore be interesting to see whether, as the litigation develops, members of the insurance industry begin to file amici supporting the constitutionality of the individual mandate. If they do, Republican party politicians who have received substantial contributions from the health insurance industry over the years will have an interesting decision to make. The Tea Party may despise the individual mandate, but the health insurance industry does not. Which is more important to Republican politicians, their base or their contributors?

Perhaps equally important, if the insurance industry tells the federal appellate courts or the Supreme Court that striking down the individual mandate is economically unsustainable and will lead to a single payer system, it is interesting to speculate about what the federal courts--including conservative members of the judiciary--will do. Will courts be more tempted to strike down the entire affordable care act, or will they instead be even more drawn to the mainstream view that the mandate is perfectly constitutional?