For reals: HR 3200 is Unconstitutional

AMEN!  Maybe those who look to foreign countries, stupid celebrities, and sentimentalist rhetoric for political guidance should try looking at ugly dudes who know and respect the Constitution.

via Forbes: The Congressional Seizure of Private Health Care Plans

Richard A Epstein, 09.22.09, 12:00 AM EDT

Will the Supreme Court calm the convulsions?

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The current incoherent struggle over health care reform is fast coming to a head. This past week, Sen. Max Baucus‘ “mark” on America’s Health Future Act laid an egg largely because it was too timid to satisfy the health care hawks in the House of Representatives. Baucus did not build in a public option; and he showed specks of mercy to employer health care plans that the democratic House regards as the villain of the piece. So the political action may well swing back to the House’s grotesque confection, H.R. 3200–America’s Affordable Health Choices Act of 2009. Good grief.

As a small-state libertarian, I cringe. To see how revolutionary the legislation is, first note how H.R. 3200 eviscerates President Obama’s oft-repeated promise that “if you like your current health care program, keep it.” Yes, but only for a day. The House’s “grandfathering” provision of existing plans is gutted by grotesquely restricted limitations. Stable health plans necessarily experience a turnover in enrollees, in policy provisions and in prices. But Section 102 of the House Bill allows any of these commonplace events to knock out grandfather status. Add one new employee to the rolls, and the plan is no longer grandfathered.

From day one all private health plans face this Hobson’s choice: Either go through the government exchange or go it alone. That freedom, however, comes at a steep price, as H.R. 3200 offers the carrots of fancy tax and affordability credits only to employers who go through the government exchange. Simultaneously, it heaps heavy payroll taxes on plans that steer clear of its clutches.

So, by default, all private firms will operate at the sufferance of the new Health Choices Commissioner (HCC), who can nix a proposed Quality Health Benefit Plan (QHBP) that doesn’t offer “acceptable coverage” to potential plan participants. Like clockwork, H.R. 3200 then kills all underwriting discretion. It allows no exclusions for pre-existing conditions; it requires guaranteed issue to all applicants and renewal of all policies, except for non-payment of premiums; it mandates parity for mental health and substance abuse programs; and it limits premium variations from top to bottom, a 2 to 1 ratio, even though high-risk seniors cost about five times as much to insure as healthy people in their 20s.

Each plan, moreover, needs to receive prior approval from the HCC who “negotiates with such entities for the offering of such plans” upon receipt of their “bids.” The regulatory noose is drawn even tighter because Section 116(a) requires all QHBPs to meet a “medical loss ratio.” In plain English the health care plan has to eat all losses in bad years but rebate excess profits in good years. Naturally, the HCC decides how much profit is too much.

The combined effect of these provisions thus turns all private health care providers into public utilities. At this point, the United States Constitution should protect these private health care plans from state confiscation of their shareholder-invested capital, just as it does with other regulated industries like telecommunications and electricity. Historically, financial regulation has been subject to tougher judicial scrutiny than land use regulation. With land use, the courts give local communities extensive power to regulate aesthetics and neighborhood character. But those physical externalities vanish when the only issue on the table is whether or not the government system allows health care firms a fair return on their invested capital.

It doesn’t. H.R. 3200 strips health plans of their power to select their customers and their contract terms. Worse still, its rebate provision takes a heads-I-win-tails-you-lose approach to profits. Investors know that the inability to set off present losses against future gains will drive their firms into bankruptcy. And they won’t take much comfort in an exit option that forces them to sell off their assets at fire sale prices to potential buyers who will be ground to bits in the same regulatory doomsday machine. Schemes like that have been struck down on their face in telecom regulation because they don’t provide for sustainable profits. The same should hold here.

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Let us hope therefore that these regulated firms can challenge H.R. 3200 in court before it grinds them to dust. For that challenge to succeed the Supreme Court can no longer overlook the broad danger that vast delegated powers pose to the simple “rule of law” values like simplicity and consistency. It cannot indulge in the fiction that the flaws in the basic structure will be corrected by intelligent administration. It must keep an entire industry from falling prey to an arbitrary, balky and untested administrative process that wrecks one-sixth of the economy. It can’t let firms be driven to inertia until the HCC sorts through the pile of applications on its desk. Wake up, Supreme Court! H.R. 3200 does nothing to facilitate new entry, to control health care costs, ease medical malpractice burdens–or ironically to help the uninsured population. The bill is political and economic madness. Accordingly, judicial invalidation is a moral and social necessity—unless Congress comes to its senses first.

Richard A. Epstein is a professor of law at the University of Chicago, a senior fellow at the Hoover Institution, and visiting law professor at New York University Law School. He writes a weekly column for Forbes.com.

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2 Comments

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2 responses to “For reals: HR 3200 is Unconstitutional

  1. Gretchen

    Before the government gets involved in trying to fix healthcare in any way, they need to get their own house in order. Medicare/Medicaid is a joke. I called the boys’ pediatrician last week to see if they were giving the flu vaccine yet. The first question was, “Do you have insurance?” followed by, “What insurance do you have?” Evidently, they only had vaccines available for private pay/private insurance, and were happy to set up our appointment. When medical providers have to screen out Medicare/Medicaid because of the piss poor reimbursement rates and red tape, who the hell would want to be involved as the government mucks up something else? Here’s an interesting little story: http://www.startribune.com/opinion/commentary/53992637.html?page=1&c=y . It was written by an orthopedist. He mentions that in 1971, he would received$1,000 for reimbursement for a hip replacement. Today, he’d received $1,600. If you take $1000 in 1971 and adjust it for inflation, it’d be around $5,200 today. Unreal. While some would villanize doctors (wealth envy? who knows), they fail to remember the many years doctors spend in school. It also seems the government has forgotten the value of health care professionals to our society. Fix medicare and medicaid first. Make it successful. If healthcare still needs to be fixed after that, come see me then. (Why do I feel a Mr. Boss-style healthcare manifesto coming on? lol)

  2. Now the insurance industry is dupping the WH. This says something about the limits of business ethics generally. I’ve just posted on it at http://soozah.wordpress.com/2009/10/13/health-care-insurance-industry-promises-in-corporate-public-affairs/

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