SCOTUS and Health Care Reform…Yikes!

March 29th, 2012 at 2:18 am

I’ve tried to pay pretty close attention to the Supreme Court’s debate on the legality of the Affordable Care Act, but the legal issues all seem quite a muddle to me.  The economics, however, at least should be a lot more clear.  Unfortunately, that’s not the case with a few of the justices, as this must-read piece by economist Henry Aaron explains.

You can’t understand the market failure that the ACA targets if you don’t understand the negative externalities caused by that market failure.  On this point, Aaron writes:

Perhaps the most glaring instance of the failure to appreciate what an externality really is came from Justice Alito who at one point challenged the solicitor general by positing that the cost of all of the care currently used by those who are uninsured is less than would be the cost of the insurance they would be forced to carry. That being the case, Alito asked, how can one say that the uninsured are shifting costs to the insured? This query is painfully detached from an understanding of what an externality really is, how insurance works, or what the impact of insurance would be on service use.

Put aside that no one questions whether the uninsured are shifting costs to the insured, or that those costs could fairly be offset by “internalizing the externality,” i.e., mandating coverage.   According to Justice Alito’s logic, anyone can impose a cost on me, my family, and everyone else, as long as that cost is less than the price of offseting it. 

That betrays a fundamental misunderstanding of a pretty simple concept that the clever justice is trying to make way too complicated.   And that should freak you out a bit as to what’s going on across town here in DC.

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13 comments in reply to "SCOTUS and Health Care Reform…Yikes!"

  1. Joel Rice says:

    Economics is only part of it. The fact is, every lobbyist and ambitious politician is now thinking that Roberts might be right and everybody should be forced to get a cell phone. If Insurance gets a federal Mandate – what about everybody else who wants their own mandate. Every lawyer knows what a precedent is, and they will be all over it like a wet blanket. Humans think like this ALL THE TIME, so the idea that you can confine it to health insurance is a joke. In fact, States do this mandate dance all the time, and that is one big factor that created the mess in the first place. Secondly, if millions can not afford insurance today, what makes you think that a mandate will change their ability to afford it ? Thirdly, when conservatives want to retaliate with a mandate of their own just to get even, how about mandating that everybody must purchase an assault rifle, or take a course on the constitution, etc etc etc, are you OK with that ?

  2. Phil Perspective says:

    Mr. Bernstein:
    Everyone with half a brain knows this is about politics. Even Ray-gun’s Solicitor General says so. So it all comes down to how much Kennedy wants to further tarnish the Supreme Court’s credibility.

  3. Scott Supak says:

    Has anyone calculated exactly how much people without health care cost me in higher taxes/premiums/medical costs/et al?

    • Michael says:

      Which question are you asking — how much our society bleeds from poorly allocated health care, or how much people without insurance cost directly due to ER visits, etc.?

  4. The BPI Squirrel says:

    As an appellate attorney, I found judges’ questions in oral argument were a very weak predictor of their opinions. Judges ask questions for many reasons, including to find the best arguments to dismiss objections that they can’t just ignore. The RedState/Tea Party objections may be absurd, but the Justices must address those objections in their opinions. There were many progressive doomsayers after the “disastrous” oral arguments in the D.C. Circuit Court of Appeals … and that court upheld the ACA.

    • Procopius says:

      Thanks for publishing that. I’ve been saying that this coverage is as annoying and pointless as the coverage of the election, which is probably only a little bit further away. There is simply no way to tell what will happen between now and the time the results are announced. For the ACA case, I think the conservative bloc will succeed in overturning ACA, but the unintended consequence will be to invalidate all federal assistence to the states where the feds try to set standards of performance. For the election, I still think Obama is going to attack Iran so that he can be a “wartime President.” That will ensure his reelection, but will destroy what’s lefte of the Republic.

  5. readerOfTeaLeaves says:

    Wow, that Brookings article is a doozy. Another money quote from it:

    Several of the justices, notably Scalia and Alito, responded to the externalities argument by saying that every economic transaction creates similar externalities. “If I don’t buy a Volt, I raise the price of Volts,” said Scalia. Alito said much the same thing. So did Paul Clement’s brief for the plaintiffs.

    ‘EVERY economic transaction creates *similar* externalities’?!!
    Did I misread??

    By this so-called ‘logic’, then my refusal to buy donuts increases the price of donuts. (My bad!)

    If “EVERY” economic transaction creates “similar” ‘externalities’, then presumably my refusal to buy cocaine increases the price of cocaine.

    This is what passes for ‘judicious’ reasoning at SCOTUS?!

    The entire health care debate, by allowing itself to presume that health care can function in a for-profit marketplace, just goes from bad to worse. But evidently, we’ve arrived at mind-boggling.

    I’ll believe that health care fits a ‘market paradigm’ the day that I ask my spouse to ‘pick up a pound of cancer and a few ounces of influenza’ on his next trip to the store.

    And should he ever arrive home with a few ounces of influenza, it’s a safe bet that within 24 hours it would replicate so rapidly that several pounds of it would be overtaking every living substance in the house, given the rapid rate at which viruses grow and spread. Ditto some cancers. These things are not conventional ‘commodities’. You can’t manage them using a market structure.
    A Volt, on the other hand, does not replicate itself multiple times overnight in your driveway; you don’t wake up and have 100 of them the next morning, crowding your neighbors’ lawns.

    Conventional commodities do not replicate. Diseases and illnesses do.
    To discuss health care in the paradigms of market forces perpetuates lunacy.

    This post helps explain why so many institutions in government — including the judiciary — are losing legitimacy. If this is the best reasoning we get from the SCOTUS, then things are even more dreadful than I had supposed.

    It has been clear for some time now that conservatives in general don’t seem able to think outside the rigid paradigms of neoclassical market structures. But unfortunately, health care does not fit inside that paradigm, so one way or another it was destined to reveal general legislative and political dysfunction. I admit, however, I did not expect it to reveal this level of judicial dysfunction.

  6. Darren M says:

    “According to Justice Alito’s logic, anyone can impose a cost on me, my family, and everyone else, as long as that cost is less than the price of offsetting it. “

    Thank you for that point. One (of many) things missing from the Government’s argument was that there is already a mandate. The difference being that those of us who have insurance are forced to pay more to cover those who do not have insurance. If SCOTUS rules against the insurance mandate they are ruling in support of ‘unwritten’ mandate, we could even call it the insurance penalty.

  7. David says:

    I believe the questions from the conservative justices are intended for future sound bites. For conservative leaders this court decision is a win-win. If the court overturns ACA it’s a win. If they don’t then they can rail about radical liberal justices ruling against the constitution. Since I think the conservative justices know this is a no-brainer and how they will have to decide, they are just laying the ground work with sound bites for George Will, Sean Hannity, etc. to rally the conservative base about courts gone wild and justice run amok. It will not occur to Fox viewers that the conservatives on the court voted for the law and conservative pundits will not point it out.

  8. Bumpa says:

    Question: Wasn’t the ‘mandate’ insisted on by the Republicans over the single-payer? and now that they have the ‘mandate’ their call is “Let ’em die?”

  9. WASanford says:


    This question is a bit off topic, but I’m wondering what the Republicans mean when they talk about the (err our) government “wasting” money. Is money spent by the government somehow separated and taken to a big bonfire somewhere where it’s burned up by the wheelbarrow full. If not, then doesn’t money our government spends end up in our economy? How could you truthfully call that “wasting” money?

    I have several other questions in this vein. For instance; how can a government that has been empowered by the people (by ratification of our constitution) to “coin” money, legitimately make the claim to be “broke?” I remember holding my uncles $20 gold piece as a child. Since the Constitution mentions coins, shouldn’t specie be considered “The people’s money?” As it is, the people are stuck with pennies, nickles, dimes, and quarters. I haven’t seen a half dollar for more than a decade and the only time I see a “silver” dollar is when I take out the 5 of them I’ve saved.

    Then there’s the question of our public debt; why doesn’t our government simply “print” money? There seems to be plenty of legal standing for it. By nationalizing the Federal Bank we would cut the debt almost in half, The last time I looked the “Fed” was holding 47% of our debt.