Testing Obama's clean bill of health

Opponents of Barack Obama's health care laws say the requirement to purchase insurance intrudes on personal liberty, but the alternative could threaten the collapse of America's health insurance sector.

The US Supreme Court is hearing arguments on whether the Affordable Care Act requirement that all Americans purchase health insurance is an unconstitutional intrusion on personal liberty, or a reasonable discretion of federal powers to promote the general welfare.

Conservatives, by persuading a majority of Justices to overturn the individual mandate, could reverse Washington's relentless push to over regulate individual and business behaviour, but they could ultimately instigate their worst nightmare – a single payer system akin to the British system.

The vast majority of Americans believe that all citizens are entitled to some reasonable access to health care. However, folks with chronic conditions or a medical history indicating high risk often cannot purchase health insurance and face financial ruin from medical bills.

Also, many people – especially young folks – tend to forgo health insurance until they develop a chronic condition or otherwise expect to encounter large medical bills. Consequently, individual policies, even for the healthy, are often prohibitively expensive or their benefits severely limited.

Both groups often end up in emergency rooms and hospitals when conditions become acute and can't pay their bills. The rest of America picks up the tab through significantly higher health insurance premiums and government subsidies.

The Affordable Health Care Act would prohibit insurance companies from denying anyone coverage or charging folks with pre-existing conditions higher premiums. To make this palatable to insurance companies, the act will require all citizens to obtain health care coverage – or pay a financial penalty – and subsidise coverage for low-income individuals.

Never before has the Congress required individuals to purchase a product, and this has caused conservatives to cry, what's next, we must all eat broccoli?

Obamacare advocates argue that the Constitution empowers the Congress to regulate interstate commerce, and the medical industry surely is an interstate market; however, throughout our history, this power has only been applied to businesses and individuals who choose to participate in markets – to how they make, sell or buy a product. It has never been invoked to compel citizens to participate in a market.

On a more practical level, advocates of Obamacare argue the individual mandate is necessary, because we all purchase health care and the only way to ensure that everyone – including those with chronic conditions or without employer-provided plans – have reasonably priced access to health care is to require everyone to buy insurance.

Maryland already compels insurance companies to take all comers and not discriminate in the rates they charge, but the state does not impose an individual mandate. Hence, such a requirement is not necessary to spread the extra cost of insuring individuals with pre-existing conditions or without employer coverage across the entire insured population. Rather, it was just a political deal between the Obama administration and insurance companies – the latter will get millions of new healthy policyholders and attendant profits.

Obamacare could be implemented without the individual mandate but for the fact that insurance costs are rising too rapidly, and each year more Americans – now totalling 50 million – become uninsured. Requiring health insurance companies to cover all comers without price discrimination would accelerate health insurance inflation and the exit of millions more Americans from the health insurance system – simply more small businesses and individuals would find coverage prohibitively expensive.

Eventually, the ratio of uninsured to insured would become too high to accommodate the acute needs of the uninsured, when they can't pay in emergency rooms and hospitals, by passing costs on to the insured population. That would cause the insurance system to collapse.

By the end of the decade, Americans would have a choice – either watch folks without health insurance suffer and die when their financial resources run out – or finance health insurance for them by extending government run programs, such as Medicaid, to the entire uninsured population. It is likely the democratic process would result in the latter with some individual co-pay on an ability to pay basis.

No matter how poorly government programs were run, millions of insured Americans and their employers would find opting out of private insurance in favour of the public option too attractive, and America would back into a single payer system – one much like Medicaid.

Peter Morici is an economist and professor of business at the University of Maryland. @pmorici1

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