Sunday, June 24, 2012
Obamacare and Interstate Commerce
Originally Written on June 24th, 2012
Post-Script Written in July 2012
Edited on February 15th, 2016
Thanks to former Wisconsin Libertarian Party officials Rolf Lindgren and Ben Olson III
for their assistance in finding reference materials for this article,
and to Patrick Mende for additional assistance with the terminology of constitutional interpretation traditions.
Table of Contents
2. The Commerce Clause
3. Three Prohibited Activities
4. Is Health Insurance Commerce?
5. Sherman and McCarran-Ferguson
6. McCarran-Ferguson and Monopsonies
7. Why Obamacare is Unconstitutional
At 10 A.M. Eastern Standard Time on the morning of Friday, June 22nd, 2012, the U.S. Supreme Court made a decision on the constitutionality of the Patient Protection and Affordable Care Act of 2010, colloquially known as “Obamacare”.
At the time of the original writing of this article – Sunday, June 24th, 2012 – the Supreme Court’s decision on the matter has not yet been revealed to the public.
I would like to explain why I believe the law is unconstitutional, giving special attention to the law’s relationship to the interstate Commerce Clause (Article I, Section 8, Clause 3 of the U.S. Constitution). It shall first be necessary to provide some background on that clause, and on its interpretation.
2. The Commerce Clause
The Commerce Clause reads, in part, “The Congress shall have Power” … “to regulate Commerce” … “among the several States”.
In my view – and in the view of many so-called “strict constructionists” and originalists (referring to proponents of the “original intent” and “original meaning” interpretations of the Constitution) – “regulate” should not be construed to mean “legislate on”, nor “prescribe the rules for governing”, but rather “keep regular”; that is, uninhibited, uninterrupted, and uncontrolled.
I, and many originalists, believe that the purposes of the Commerce Clause include giving the federal government the power to prevent and reverse attempts by the states to create barriers and impediments to free trade across state borders (including tariffs and importation fees), and to prevent protectionism by the states, and trade wars between the states.
Two effects that these purposes have are as follows: 1) to turn the nation into a free-trade zone; and 2) to prevent state governments from inappropriately pandering to the industries and businesses within their jurisdictions, by protecting them with regulatory favors, and with taxpayer subsidization and bailouts.
“Commerce” has been held by the Supreme Court to mean “intercourse”, which includes traffic and navigation. Being that the constitutional philosophies of strict-constructionism and originalism have a great deal in common – and that originalists feel it informative to inquire as to how certain important words were defined when the laws containing them were written – it would be appropriate to mention that a dictionary printed in the 1790s defined the word “commerce” (in its verb form) to mean “to hold intercourse”.
Supreme Court precedent supports the notion that “intercourse” includes exchange and interchange. As I stated above, “commerce” is not strictly traffic and navigation, but includes traffic and navigation, so it would seem reasonable to assert that commerce also includes the component of economic exchange, interchange, and / or transaction. Therefore, I feel that it would be reasonable to define “commerce” and “commercial intercourse” as “travel, traffic, and navigation used for the purpose of conducting and facilitating economic exchange, interchange, and / or transaction”.
3. Three Prohibited Activities
Next, I will explain which types of state-sponsored activities are prohibited by the Commerce Clause, at least in the opinions of myself, strict constructionists, and originalists.
The first type of activity pertains to distinctions between interstate and intrastate (in-state) activity, and between manufacture and commerce. In the 1888 case Kidd v. Pearson, which pertained to the manufacture of alcohol, the Supreme Court held there to be a distinction between manufacturing and commerce. The effect is that state prohibitions on the manufacture of goods within a state – for sale out-of-state – do not conflict with the Commerce Clause, and therefore are constitutional.
However, in discussing contraceptive goods in a Republican debate in 2012, then presidential candidate Ron Paul made a statement which implied that if the importation of a good into a state cannot be banned, then the good itself can also not be completely banned within a state.
While I have not encountered any information which would indicate that there exists any precedent supporting Dr. Paul’s position, my opinion supports a compromise between these two viewpoints. Although my ethical position is that no state should prohibit the manufacture of any good – a position which I take for various reasons, related to contract rights, and the conditions for legitimate consent to government – my constitutional law opinion is that, while states should have the power to prohibit manufacture of certain goods, they should not have the power to prohibit the possession of goods, nor to prohibit their importation across state lines.
The second type of prohibited activity pertains to what constitutes inappropriate inhibitions, interruptions, and controls of interstate commerce.
Views expressed by the founding fathers in The Federalist Papers support the notion that the Commerce Clause should prohibit the enactment of tariffs, tolls, and other taxes on the importation of goods. In the 1942 case Wickard v. Filburn, the Supreme Court ruled that quotas can be imposed on the possession of goods whose existence is deemed to substantially affect interstate commerce.
Although I am not aware of any case that could be cited as precedent to support the notion that the Commerce Clause should prevent the imposition of quotas, it is widely acknowledged among strict constructionists and originalists that the Wickard decision was one of the most inappropriate, overreaching decisions in the history of the court. Additionally, that, with that decision, began the entrenchment of precedent supporting a loose definition of what “substantially affects” interstate commerce as a justification for federal intervention, getting even worse in the Heart of Atlanta Motel v. U.S. decision.
It is this loose definition that has been construed to justify the need for laws like Obamacare, among many others. As far back as 1824, when Gibbons v. Ogden was decided, the phrase in the Commerce Clause “among the several States” has been effectively redefined as loosely “intermingled with the several States”.,
The third type of prohibited activity pertains to exclusive intrastate monopolies.
In my opinion, the wielding of exclusive in-state monopolies, is the only type of activity among the three I have mentioned, which pertains to the Affordable Care Act. The necessity of Obamacare seems to be predicated chiefly upon the notion that health insurance companies should be permitted to compete across state lines. In my view, this is a perfectly legitimate objective, and one that merits and requires federal intervention in order to address.
I believe that commercial exchange should be construed to include the purchase, as well as the sale, of goods and services. I also feel that it would be just as unfair – and inhibitive of economic activity, thus meriting and requiring federal intervention – for a state to give itself or businesses within its jurisdiction the sole, exclusive power to sell a good or service (monopoly), as it would be unfair to give or wield the sole power to buy a good or service (monopsony). Health insurance, of course, is, and should be, no exception, given that the purchase and sale of health insurance does, indeed, constitute economic activity (and, it would seem, commercial transaction).
I am not aware of any business that has been awarded a state-upheld exclusive monopoly on the sale of health insurance. Being that people need health care – being capable of dying, and possessing physical, tangible bodies, unlike businesses – it would be ludicrous to consider the possibility that any business has been awarded a monopsony on the purchase of health insurance, just as it would be ludicrous to consider why a business would need to purchase health insurance (except on behalf of its employees). Furthermore, since health insurance companies sell health insurance, but governments don’t, it is obvious that no state has given itself a monopoly on the sale of health insurance.
However, the question remains of whether any state government has given itself a monopsony on the purchase of health insurance. As I stated above, such a system would be an unfair inhibition of commerce, which would merit and require federal intervention in order to resolve. Moreover, it would be ludicrous to conjecture as to why an abstract, potentially perpetual institution like a state government would need to purchase health insurance (except on the behalf of its employees), especially why it would need to wield a monopsony on such purchase.
Being that businesses and governments purchase health care on the behalf of their workers and citizens, there is no need to proceed along such an absurd line of logic. Rather than immediately answering whether any state government has given itself the sole, exclusive power to purchase health insurance, it will first be necessary to delve into the history of constitutional law surrounding health insurance.
4. Is Health Insurance Commerce?
An issue that should be addressed is whether the sale or purchase of health insurance constitutes commerce.
In the 1869 case Paul v. Virginia, the Supreme Court held that “issuing a policy of insurance is not a transaction of commerce”. To cite this case as precedent would support the notion that the federal government has no constitutional authority to regulate the health insurance industry; neither to require the purchase of insurance (as a corollary to permitting insurance companies to compete within states), nor to prohibit the interstate purchase and sale of health insurance. However, this is not the case.
In the 1944 case United States v. South-Eastern Underwriters Association, the Supreme Court held that the Sherman Antitrust Act of 1890 applied to insurance. Specifically, that the provisions of the act which prohibited artificial, unnatural, and coercive monopoly – and business activities which reduce competition in the marketplace – applied to insurance.
The effect of the decision in United States v. South-Eastern Underwriters Association is that the federal government can regulate insurance. This is not because the Paul v. Virginia decision was wrong in holding that issuing an insurance policy is not a commercial transaction; but, rather, because the market for insurance is vulnerable to being compromised by the forms of artificial monopoly, and inhibition of competition, which are prohibited by the Sherman Act.
Keeping in mind that the decision in Paul v. Virginia was that “issuing a policy of insurance is not a transaction of commerce”, something else to examine is whether the failure to purchase health insurance really constitutes a “transaction of commerce”.
In an article from late 2011, David Lat expressed the opinion that refraining from purchasing health insurance does not constitute transaction, but that it instead constitutes failure to engage in commerce.
In the same article, Lat summarizes the views of former U.S. Solicitor General Paul Clement, explaining that the individual mandate “orders people to buy health care insurance”, and then regulates “that which it has forced you to do”. That is, the individual mandate forces a person to engage in what is ostensibly commerce, rather than regulating ostensible commerce which already exists.
Additionally – despite all the rhetoric that there is need for legal reform to address the problem of the health care costs of the uninsured being passed along to everyone else – it is health insurance (not health care) which Obamacare regulates. However, according to Professor Laurence H. Tribe, it is “economic activity” “to make other people pay for your health care”. According to the aforementioned article by David Lat, that is “what ends up happening under the status quo, without the Act” (emphasis mine).
I would agree with Lat, and argue that Obamacare ensures that this happens, rather than ensuring that it doesn’t happen, its intended purpose. Furthermore, Obamacare causes particular people (i.e., the taxpayers, and those who may be required to purchase insurance under the provisions of the act) to pay for other people’s health care, rather than simply causing some unspecified collective of persons or agencies to pay – or causing the costs of health care not to be paid at all – which is the actual status quo.
5. Sherman and McCarran-Ferguson
In 1945 – the year after the Supreme Court rules, in the case of U.S. v. South-Eastern Underwriters Association that the Commerce Clause held that the court had the power to regulate the insurance business – the McCarran-Ferguson Act was passed by Congress.
McCarran-Ferguson does not regulate insurance, nor does it require the states to regulate it. Instead, it allows the states to regulate insurance, and preserves certain state regulations on insurance.
The McCarran-Ferguson Act also provides that federal anti-trust laws – and acts of Congress that do not expressly purport to regulate “the business of insurance” – will not pre-empt state laws that regulate insurance. Additionally, the act exempts the business of insurance from most federal regulations, whether the states regulate insurance or not. The federal regulations from which insurance companies are exempted, include federal anti-trust laws, except those which pertain to cases of boycott, coercion, and intimidation.
In a partial dissent in U.S. v. South-Eastern Underwriters Association, Supreme Court Justice Robert H. Jackson called the idea that insurance is not commerce a “fiction”. If Jackson had been in the majority, then it appears that the decision in the case would have had the same effect, but for a different reason. The reason is that the sale and purchase of insurance would indeed be considered commercial transactions, and thus, federal intervention would be constitutional in certain cases.
Given the outcome of the aforementioned case, I would note that the Sherman Antitrust Act and the McCarran-Ferguson Act are more effective in preventing inappropriate inhibitions of interstate economic activity than is the Commerce Clause itself. This is because those two acts have been held to apply to “the business of insurance”, which has somehow been deemed to exist outside the realm of commerce.
6. McCarran-Ferguson and Monopsonies
Next, I will address the relationship between the McCarran-Ferguson Act, intrastate insurance monopsonies, and Obamacare.
The McCarran-Ferguson Act provides that states may regulate insurance freely, unless federal anti-trust laws – or acts of Congress which expressly purport to regulate the insurance business – pre-empt state laws. This would seem to give Congress the authority to regulate the health insurance industry. In the case of Obamacare in particular, then that means that as long as Obamacare expressly purports to regulate health insurance, then it can pre-empt state laws regulating health insurance.
However, I have not become aware of any such express claim that the purpose of Obamacare is to regulate the business of insurance; it has always been billed as pertaining to care (Obama-care, Affordable Care Act, etc.). But I have heard proponents of Obamacare cite the Commerce Clause to defend the act’s constitutionality.
However, being that the decisions in Paul v. Virginia and U.S. v. South-Eastern Underwriters Association hold that insurance is not commerce, the Commerce Clause does not even pertain to health insurance, and so, the Commerce Clause does not support the constitutionality of Obamacare (nor does it have anything to do with Obamacare, if the law is considered upon its own definitions, purposes, and justifications).
On the other hand, McCarran-Ferguson permits the states to regulate insurance (in some cases). Some opine that this fact effectively prohibits the sale of insurance across state lines, because the states have the exclusive power to regulate the insurance policies bought and sold within their jurisdictions, free from federal intervention (that is, when antitrust laws, and acts of Congress expressly purporting to regulate insurance, do not pre-empt state laws).
It seems reasonable to suggest that federal intervention is necessary to permit the sale of insurance across state lines. It appears that the only thing that an act of Congress would have to do, in order to pre-empt and override state laws (preventing regulations that obstruct free exchange across state borders), is to properly and expressly purport to regulate the business of insurance.
7. Why Obamacare is Unconstitutional
I conclude that there are two main reasons why the Patient Protection and Affordable Care Act of 2010 is unconstitutional.
The first reason is that the law does not expressly purport to regulate the business of insurance. With such a claim, the federal government could easily justify intervention in order to permit or require that insurance transactions may be conducted across state lines, pre-empting and invalidating state laws on such matters, and (most likely) reducing premiums in the process.
The second reason is that the individual mandate portion of the law is not a tax, as its proponents claim, but a penalty, imposed upon people for declining to purchase health insurance policies. If it were a tax, then it would be an infinite tax, being a substantial “tax” upon the zero-dollar “transaction” of not buying health insurance, which is a non-transaction. Furthermore, taxes are supposed to be small, relative to the price of the item; there is no item here whatsoever.
Additionally, had the Kucinich Amendment to Obamacare been adopted, there would have been a second reason (although this reason is not undermined by its lack of inclusion, as I will show). As a bit of background, I will note that Kucinich was told that his amendment would be included in the law, but that promise was later rescinded. The Kucinich Amendment would have permitted each state to implement a single-payer (or “universal”) health insurance system.
The inclusion of the Kucinich Amendment would have, effectively, allowed for the possibility that any state could erect, for itself, the sole and exclusive power to purchase, as well as regulate, health insurance, within its territory. This, as I explained, would constitute monopsony power; i.e., an exclusive monopoly on the purchase of health insurance on behalf of its citizens.
I regard such systems as violations of the Sherman Antitrust Act, and as unconstitutional inhibitions on the sale of insurance across state lines, which run contrary to the purpose of the Commerce Clause. Additionally, since Obamacare does not expressly and explicitly invoke the authority to regulate insurance as its purpose, it lacks the proper authority to pre-empt state laws regulating health insurance.
Therefore, even without the Kucinich Amendment, Obamacare sets up a federal monopsony on the purchase of health insurance; at least, virtually, because it does nothing to either allow, nor require, the sale and purchase of health insurance across state lines.
Not only does Obamacare fail to cite the proper authority to achieve its purported ends; part of the law actually defeats the very goals which its proponents claim are the law’s chief objectives. Namely, to increase competition, and reduce inhibitive economic activity, in the health insurance business, in order to drive down costs of health care insurance premiums. Not only has competition not been increased – nor inhibitions decreased – but the prices of premiums have risen. Thus is the legacy of the so-called “Affordable Care Act”.
The Patient Protection and Affordable Care Act of 2010 has been a colossal waste of time, money, and public attention. It will cost somewhere in the neighborhood of a combined $2 trillion, to implement new regulations, as well as changes to existing programs. It has resulted in two or three years of public and legislative discussion, as well as a subsequent three or four years of repeal attempts, filibusters, and government shutdowns.
There truly is a need to reform the status quo of the insurance business in this country. But given what one source estimated as an approximately 80% chance that at least the individual mandate would have been overturned, and the fact that inappropriate power was cited in order to defeat the very purpose of the legislation, it is clear that this legislation – which, if upheld, will be the best-known, best-renowned, and longest-lasting legacy of the Obama Administration – is nothing more than a costly, thoughtless, ineffectual distraction from much more pressing issues.
Moreover, this comes in the aftermath of a rapid decline of home values, out-of-control bailouts and Major Fiscal Exposure, records deficits and national debt, economic stagnation, rapidly increasing disparity of wealth and income, an upswing in domestic surveillance, and heightened geopolitical tension. This is not to mention the very rising health care and insurance costs, which were supposed to be addressed by the act.
I have neglected to mention several important factors relating to broader questions pertaining to the law’s constitutionality (or, rather, unconstitutionality), because they are outside of the scope of this article, which focuses on the relationship between Obamacare and the interstate Commerce Clause.
These factors include: 1) taxation authority; 2) issues pertaining to the interpretation of the General Welfare Clause; 3) constitutional legitimacy of the presidential reorganizational authority, which was cited in order to establish the executive branch departments, which were the progenitors of the modern Department of Health and Human Services in the first place; and 4) whether the law’s provision that the federal government will withhold Medicaid funding from the states if they do not expand coverage for the poor, constitutes unlawful coercion.
I will end by noting that, prior to the Supreme Court’s ruling, it was reported that the justices of the Supreme Court are not positive that that date was not an appropriate time to rule on Obamacare. This is because the Anti-Injunction Act provides that a taxpayer may not challenge a law until it goes into effect, and until the taxes enabling it have been assessed. This was scheduled to occur in April 2015, although the bulk of its provisions, taxes, and programs were rolled-out in 2013 and 2014, and will not be fully implemented until 2022.Lastly, prior to the Supreme Court’s decision, the following facts had been reported: 1) that Associate Justice Anthony M. Kennedy’s opinion would have, most likely, been the deciding factor; 2) that one of Kennedy’s former clerks thought that Kennedy would have voted to uphold the law (as it turns out, he did not); 3) that it may have appealed to Kennedy to avoid making a decision, on the grounds of proper jurisdiction, and of the Anti-Injunction Act; 4) that several of the justices of the Supreme Court seemed skeptical that the Anti-Injunction Act would prevent the individual mandate from being challenged as early as June 2012; and 5) that the vast majority of the interested parties involved in the suit believed that the Anti-Injunction Act should not apply.
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