Code Red: Two Economists Examine the U.S. Healthcare System

June 15, 2012

My Initial Reaction to the Supreme Court Decision

Filed under: Uncategorized — David Dranove and (from Oct. 11, 2013) Craig Garthwaite @ 8:26 am

Note: I you weren’t looking you would not notice that I wrote this blog two weeks before the Supreme Court decision. I got a lot of it right — the majority recognized that the mandate was equivalent to a tax and at least five justices believed that the mandate violated the Commerce Clause. I missed the important legal implications and I did not anticipate the pivotal role played by Justice Roberts but in these errors I am in good company.


Soon the healthcare blogosphere will be filled with reactions to the Supreme Court decision on the Affordable Care Act. Rather than see my own blog lost amidst hundreds of others, I thought it best to preempt the competition, so to speak, and offer my reactions now.

The 5-4 decision should not have surprised anyone. Many Americans will conclude (and not without reason) that most justices based their vote on whether they supported the ACA and not on whether its provisions violated the Constitution. I also have little doubt that as we move forward, many Americans will blame the court’s majority and their political allies if healthcare spending continues to rise unabated.

The justices offered thought provoking arguments on both sides of the case. While the media has focused on a couple of snarky comments written by Justice Scalia, I was particularly struck by an economic argument made by Justice Ginsberg. She notes that there is no meaningful economic difference between collecting a general tax from the entire population and then offering a rebate to individuals who purchase a specific good, and collecting a limited tax from individuals who do not purchase that good. She goes on to say that the former is Constitutional, so surely the latter must be as well. This seems to me like a constitutionally slippery slope. Justice Scalia offers that the founding fathers may not have been the best economists, but we are governed by the Constitution as they wrote it, not as economists would have written it. It is no wonder that so many individuals are frustrated by the outcome of this process.

In ruling on the constitutionality of the purchase mandate, the Supreme Court has also decided the fate of the entire ACA. I thought that Justice Scalia makes a valid argument that health insurance exchanges would likely fail without the mandate, and that without exchanges, the entire ACA fails apart. His understanding of selection bias makes me believe he would have been a terrific economic theorist! But am I the only one who thinks it ironic that he appeals to economic theory here but ignored the equivalence of taxes and rebates? Justice Ginsberg also shows surprising economic depth, noting that the adverse selection “death spiral” is not a given and that exchanges would probably survive without the mandate. And when she cites my colleague Ben Handel’s paper on inertia in health insurance markets, I am truly awed. Thanks to the Supreme Court decision, we may never know if Justice Ginsberg is correct.

Do not miss the separate opinion from Justice Thomas. When I read, “This issue was so important that I almost asked a question during the hearing,” I almost fell out of my chair.

One final note: Having had this opportunity to react to the Supreme Court decision, I am glad that such decisions are entrusted to legal scholars and not economists. I get the feeling that if nine economists had voted on the ACA, the vote would have been 3-3-3.

Cheers!

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