Ruling could backfire on health-care critics

By Robert A. Burt

and Theodore R. Marmor

The tea-party faithful are rejoicing at the ruling by Henry Hudson, the Virginia federal district judge, that President Obama's health-care law is unconstitutional. They might come to regret this ruling if it is ultimately affirmed by the Supreme Court.

Hudson ruled that the individual insurance mandate was the only part of the health-care law that violated the Constitution. He left intact the provisions forbidding insurance companies from excluding applicants based on preexisting health conditions and from imposing caps on medical expenditures once the insured person became ill. The judge held that these provisions did not interfere with the liberty of individuals to choose whether to purchase insurance but only restricted the commercial activities of the insurance companies themselves.

As a matter of legal logic, this ruling may be coherent. As a matter of practical economics, however, the ruling would have a disastrously perverse effect.

Insurance companies could collect enough premiums to meet these new obligations about preexisting conditions and capped expenditures only if they could enroll large numbers of healthy individuals. If the restrictions stood alone without the mandate for individual insurance, too many people would wait until they were actually ill before purchasing health insurance.

No sensible company would offer open-ended insurance coverage under such circumstances. Since the health-care law without the individual purchase mandate would forbid companies from protecting themselves against financial loss, any sensible company would simply refuse to offer health insurance to anyone. Alternatively the companies might only offer policies with drastically limited coverage and high deductibles - which would in effect be health insurance for almost no one.

Hudson's ruling, if affirmed by the Supreme Court, would thus precipitate a social crisis. The new law's promise of health insurance for all would be converted into a threat of health insurance for none.

Congress could, of course, remedy this problem. One way would be to repeal the requirements on preexisting conditions and caps. But these provisions are the most popular parts of the new law - and have already come into effect. Accordingly, a repeal of popular, easy-to-understand benefits that have already been bestowed would almost certainly be a political impossibility.

This would leave Congress with only one realistic alternative: Create a sufficiently large insurance pool to offset the costs of these new benefits. Since the constitutional ruling would forbid legislation that requires everyone to buy private insurance, Congress would have no alternative but to fund health-care insurance from public tax revenues - perhaps tax revenues deposited in a specially designated trust fund like Medicare or revenues raised by a specially designated tax like FICA to support the Social Security system.

In other words, Supreme Court affirmation of Hudson's ruling would create a backlash that would greatly enhance the political popularity of some kind of publicly funded, single-payer health insurance system. Insurance company lobbyists have passionately opposed this result. But their opposition could be appeased on the grounds that this would relieve them of the impossible bind imposed by the new Supreme Court ruling - the bind that they would suffer great financial losses in complying with the judicially revised law unless they withdrew almost entirely from providing health insurance to anyone. (Under a publicly funded, single-payer system, there would still be a profitable market open to insurance companies in covering expenditures above the basic entitlements in the public system - a market which the private insurers have already found profitable in supplementing Medicare entitlements.)

Those who currently exult at Hudson's ruling seem to have overlooked the likelihood that this exercise of judicial activism will create a political impetus toward what the right wing labels "socialized medicine." Tea-party adherents should worry about the consequences of getting what they asked for. The rest of us should welcome this ironic result.