Health Care “Reform”—Unconstitutional?

The Senate gave the American people a grim Christmas gift by passing the health care bill.  It appears likely that a bill at least as bad will emerge from conference committee and be passed into law over the opposition of a unified Republican party and a clear majority of the American people.  The result will be disastrous medically as well as financially.  Our only hope, as far as I can see, is to mount legal challenges to the constitutionality of the law.

Richard Epstein makes the case that the Senate health care bill is unconstitutional.  It’s worth reading the entire analysis.  But here are some key points:

In effect, the onerous obligations under the Reid Bill would convert private health insurance companies into virtual public utilities. This action is not only a source of real anxiety but also a decision of constitutional proportions, for it systematically strips the regulated health-insurance issuers of their constitutional entitlement to earn a reasonable rate of return on the massive amounts of capital that they have already invested in building out their businesses….

…the Fifth Amendment affords regulated health-insurance companies protection against the taking of property without compensation and without due process of law….

These constitutional provisions have been subject to extensive interpretation in the Supreme Court in ratemaking cases, which must be taken into account in dealing with the legislation. The Supreme Court’s basic constitutional requirement is that any firm in a regulated market be allowed to recover a risk-adjusted competitive rate of return on its accumulated capital investment….

The Reid Bill emphatically fails this test by imposing sharp limitations on the ability of health-insurance companies to raise fees or exclude coverage. Moreover, the Reid Bill forces on these regulated firms onerous new obligations that they will not be able to fund from their various revenue sources. The squeeze between the constricted revenue sources allowable under the Reid Bill and the extensive new legal obligations it imposes is likely to result in massive cash crunch that could drive the firms that serve the individual and small-group health-insurance markets into bankruptcy….

On the one hand, the Reid Bill depends on a combination of huge general tax increases, which is coupled with special levies on industries such as medical-device and pharmaceutical companies. These tax revenues are then used to fund subsidies for large segments of the population in order to allow them to purchase qualified health-care plans that are sold through a set of State Exchanges that the Reid Bill creates. In order to prevent these subsidies from flowing through to the various health-insurance issuers, the Reid Bill imposes extensive obligations on any health-insurance issuer or health-plan provider that wishes to participate within the system in order to keep them from capturing subsidies meant for others. The effect of the subsidies is to increase the level of health care that will be demanded in the United States. The effect of the regulations is likely to be to impose huge costs on various health-insurance companies as they struggle to meet the influx of demand when they are at the outer limit of their capacity.

There are at this point enormous uncertainties about how this entire scheme will play out. My view is that it will prove ruinous on all three fronts. The general public tax increases will be so sharp that it is unlikely that they will generate additional revenues. The subsidies will be so large that the demand for medical services will be left largely unsatisfied, so two consequences are likely. First, an increased queuing for various health care services is to be expected. Second, there will be increased pressure to exclude large groups of people from the system, on the lines of Massachusetts’s recent decision to cut from its system 31,000 legal immigrant aliens (who pay taxes but do not vote).

Furthermore, on the supply side of the market, all health-insurance companies will find themselves in an impossible dilemma. If they decide to offer their health-insurance plans outside the State Exchanges, they will be unable to compete for the subsidized consumers who are only able to spend their tax dollars within the framework of the State Exchanges. Their position will be worse because they shall continue to be subject to all present mandates and regulations that have an impact on their business. Insurers outside the Exchanges also face the likely prospect that they will still be further taxed and regulated to help finance the intolerable burdens that arise under the subsidized insurance supplied within the State Exchange system.

The Senate bill will drive private insurers out of the health insurance market by making it impossible for them to earn reasonable rates of return on investment.  This is the unconstitutional taking; it is also the left’s primary goal.  The point of the exercise is not providing health insurance to those currently uninsured—that could be accomplished without tampering with health insurance for those already covered—but nationalizing a large portion of the economy.

As Epstein argues, the result will be devastating.  The bill expands demand for medical services while constricting supply, which can only result in price increases and queuing.  Medical costs will soar while the availability of medical treatment declines.  This should be no surprise to those who have observed the results of “reforms” in Massachusetts, Tennessee, and other states.

What makes all this worse is that medical research is on the verge of making significant strides against a variety of diseases and, indeed, against aging itself.  The bill will confiscate the source of funds for research, delaying or eliminating those gains.  The bill’s effects on the elderly and sick will be felt first, but the really significant effects will fall on the young people whose votes elected Obama.  They and their children will lose years, possibly decades, from their life expectancies.

Let’s hope that Epstein is correct in predicting that the bill will face years of legal challenges—and that some of them succeed.

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