On Monday, the Supreme Court will commence a nearly unprecedented six hours of oral argument concerning the constitutionality of the Affordable Care Act (ACA), signed into law two years ago tomorrow. The most significant challenge to the act involves the "individual mandate," which compels most individuals to purchase health insurance by 2014 or suffer a monetary penalty. Challengers claim that the provision violates the Commerce Clause, under which Congress has broad authority to regulate interstate commerce, and that sustaining the mandate would permit Congress to enact laws requiring individuals to do whatever it chooses. Both arguments are mistaken. The ACA is consistent with long-standing precedent allowing Congress to tackle regulatory problems affecting commerce that states are ill-suited to solve on their own.
The individual mandate is the centerpiece of a complex regulatory scheme that accomplishes two objectives: obligating insurers to cover individuals with preexisting conditions, and doing so without generating prohibitively costly premiums. Achieving these goals requires what insurers call risk pooling. Broad coverage at reasonable rates is only possible when premiums of individuals least likely to require medical care offset the expected cost of care for those most likely to require it. Risk pooling does not happen by itself. In an unregulated market, healthy people do what those with pre-existing conditions cannot: They either opt out of insurance, believing they will not need costly care, or voluntarily disclose their good health to insurers to secure a low premium. The result is that low-risk individuals pay low premiums and high-risk individuals pay high premiums, defeating risk pooling.
Health insurance produces yet another separation, this one among states, which explains why the individual mandate is a proper exercise of congressional commerce power. Prior to the ACA, seven states demanded that insurance companies cover high-risk individuals but without imposing an individual mandate. The results were predictable and frustrating. Absent a meaningful quid pro quo for the additional coverage obligation, insurers pulled out. Leaving the problem of the uninsured to state regulation risked a separating (rather than a pooling) outcome in which high-regulation states drive out insurers but attract high-risk individuals, and low-regulation states attract insurers to cover those willing and able to pay.
A single state — Massachusetts — successfully imposed a coverage obligation while inducing insurers to stay: In exchange for requiring insurers to cover all individuals, the Commonwealth mandated that those without insurance purchase it. Several factors allowed Massachusetts to accomplish what other states could not: a population that was wealthy, healthy and overwhelmingly insured, plus a fortuitous Medicaid offset that supplemented the cost gap. These factors explain why the Massachusetts exception proves the general rule: States, themselves, cannot avoid the larger separating outcome. Solving this coverage problem demands federal regulation under the Commerce Clause.
The Supreme Court has recognized the need for broad Commerce Clause powers to advance national interests and has relied on the Commerce Clause to strike down state laws that thwart national interests. In its 1995 decision United States v. Lopez, the Court limited congressional regulation in cases like the ACA challenges to "economic activity [that] substantially affects interstate commerce." Although insurance is "economic," challengers have seized upon the word "activity" to defeat the ACA. And yet, the test in its entirety amply supports the individual mandate.
The landmark 1942 decision Wickard v. Filburn, which involved a federal law using fines to limit how much wheat farmers could grow, permitted Congress to regulate activity, "whatever its nature ... if it has a substantial economic effect on interstate commerce." The purpose was to stabilize wheat prices during the Depression by limiting production. Acting on their own, states would allow more production, benefiting their farmers while driving prices down. Like the ACA, only federal regulation, coupled with a strong enforcement signal — sustaining the fine against a small-scale farmer — could solve this problem.
Some claim that the Wickard and Lopez formulations prevent Congress from regulating "inactivity," including not buying insurance. However, past Supreme Court decisions have sustained, under the Commerce Clause, federal statutes regulating so called inactivity. Moreover, not buying insurance constitutes "activity" because it is a decision to self-insure or impose costs on others.