Reading the transcripts of the arguments before the Supreme Court around the Affordable Care Act’s individual mandate to purchase health insurance gave me the same feeling I got when reading the Game of Thrones. For readers who may be unfamiliar with the book or the HBO series, Game of Thrones is a fantasy loosely based on medieval England and the world around England at that time, but with fire breathing dragons and zombies. The discussion before and with the Supreme Court Justices seemed loosely based on the Affordable Care Act and the health care delivery system, but the discussion contained a couple of zombies and a least one dragon.
There are three fundamental issues that the discussion with the court danced around but only occasionally enunciated. First, the only mechanism for privately financing health care is health insurance. Private savings are simply inadequate to cover costs of episodes of care for even moderately severe conditions. The only alternative to a sustainable private insurance market for financing health care services is a tax-based government system.
Second, a sustainable private insurance market is possible only if adverse risk selection is managed. Adverse risk selection is the fact that individuals with the highest demand for health insurance are those with the greatest health care needs. No insurance market can be sustained if the only people purchasing insurance are those about to file a claim.
Currently almost 95 percent of those with private health insurance coverage purchased that coverage through an employment-based plan. That is no accident, nor solely a function of the tax preference for employment-based coverage. It created through a market innovation that mitigated adverse selection: the bundling of employment with health insurance coverage. By bundling health insurance into the compensation of employees the decision to purchase health insurance coverage was no longer a simple calculation of an individual’s risk of needing care (health) and the cost of coverage. More healthy individuals purchased coverage so the premiums were lower so more people could afford coverage.
The problem we face is the employment-based health insurance system is eroding. Health care cost inflation has moved health insurance from a fringe benefit to a major component of compensation. As a result people are making employment choices on the basis of their health care needs, increasing the costs of coverage, and reducing the number of people with coverage.
Which brings us to the third and most important issue; the dragon in the room: the question of an American’s right to health care. Fundamental to the Solicitor General’s argument was that the Affordable Care Act was not “creating commerce” by forcing people to buy coverage they otherwise would not, but that it was regulating the health care services market; a market that all individuals participate in at some point in their lives. Health insurance is only a means of financing access to health care services. If health care is not a right then why worry about anybody else’s access to health care services.
From the transcript:
24 GENERAL VERRILLI: No. It’s because you’re
25 going — in the health care market, you’re going into
1 the market without the ability to pay for what you get,
2 getting the health care service anyway as a result of
3 the social norms that allow — that — to which we’ve
4 obligated ourselves so that people get health care.
5 JUSTICE SCALIA: Well, don’t obligate
6 yourself to that. Why — you know?
An objective observer of the United States health care system would have to conclude that we have obligated ourselves so that American citizens get health care. We send out ambulances to individuals in accidents or suddenly stricken with illness regardless of ability to pay. We enacted EMTALA (Emergency Medical Treatment and Labor Act) that requires hospitals to provide an examination and stabilizing treatment, without consideration of insurance coverage or ability to pay, when a patient presents to an emergency room for attention to an emergency medical condition. The Medicare and Medicaid a health insurance programs for populations that are not participating in the employment-based private market. The U.S. Treasury department estimates that we will subsidize the purchase of private health insurance through the employment-based system by $185 billion this year. Direct subsidies from all levels of government are given to health providers who provide uncompensated care.
One problem for the court is that we have not as a nation defined the scope of that right. The Affordable Care Act starts that definition, but there will be a great degree of variation in who has access to what care even after the law is fully implemented. It does seem evident however that we do believe there is some core right to health care services and the argument is over how to pay for it.
If we are going to pay for it there are only two possible ways: create a public program for everyone like Medicare, or find a way to encourage a private market for health care services. If we want a private market it can only be financed through an insurance mechanism and an insurance mechanism has to have a way to mitigate adverse selection.
Does the individual mandate that everyone purchase insurance address that problem? Well, it could if it were enforced. The Affordable Care Act creates that individual mandate, but the financial penalty for not purchasing coverage is relatively small compared to the cost of coverage and there is no penalty for not paying the penalty. There are other features that are either in the law or in the scope of the law that may mitigate the effects of adverse selection, but the impact of the individual mandate is uncertain.
A court ruling that upholds any of the parts of the law that are under contention is an affirmation that health care is right of citizenship. However, the Supreme Court rules the debate on the scope of that right and how to finance it will be with us for many years to come.