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The U.S. Supreme Court is a political institution, but conservative or liberal, tries not to appear to be so. This is particularly difficult when the issue is the constitutionality of a major piece of legislation that impacts all residents in the U.S.. So-called Obamacare is a misnomer. It is a regulation of health insurance not of healthcare. It provides more insurance benefits, reduces limitations on insurance coverage and increases the amount of people with access to the insurance system on a mandatory basis with some exceptions. The nature of insurance is that contingencies that may occur in the future are paid for by premiums by all insureds in the present, regardless of whether they are actually using the coverage. Healthcare is unique in that all humans will get sick at some point in their life and will need the benefit of it, often at costs that they could not afford without insurance coverage. To produce the funds to meet such a individual contingency you need a large pool of individuals (or groups), many of whom are healthy and do not presently need the coverage, to contribute in advance and for many years. Without this there would not be sufficient funds to pay for catastrophic care, thus an individual mandate is necessary to keep the insurance system and healthcare system that relies upon it, solvent. The catastrophic care required by a minority of individuals drives the cost of the entire system. Obamacare decided not to directly address the cost of healthcare, and catastrophic care in particular, because it would have involved combating the well funded and influential medical profession, hospitals, the pharmaceutical industry and labor tied to the current system, without a concentrated well funded lobby in opposition. Business is split on the issue and individuals do not have concentrated lobbying power. Addressing access to health insurance was relatively easier and that is principally what Obamacare is about.

The Justices recognize that Congress has the power under the interstate commerce clause to regulate insurance. Under the McCarran-Ferguson Act it permitted States to regulate it when it chose not to. Accordingly, apart from self-insured health plans which are subject to Federal ERISA restraints, and the Federal Medicare and military programs, States principally regulate health insurance. So-called Obamacare changed some of the benefits and limitations in these regulated insurance plans, but to sustain the system, it gave insurers a reliable group of new individuals who either could choose to pay premiums for health insurance or pay a penalty. The question that Justices Kennedy, Chief Justice Roberts and other raised was whether Congress could constitutionally mandate that someone who was doing nothing by choice could be mandated to do something. In short, could they be required to purchase health insurance or incur a penalty (or tax) if they did not have it or want it. Another way of asking this question is could Congress preclude individuals from doing nothing. Asked in this manner the answer is simply yes. Under the Securities laws for instance, a material misrepresentation occurs by omission, as well as by comission. Manufacturers cannot produce dangerous products and release them into commerce without warning or recall. Simply doing nothing is something Congress can prevent if it impacts interstate commerce. The point that the Solicitor General was trying to make in an otherwise muddled argument to the Court, was that there is a national scheme of insurance regulation of health insurance and because people who will eventually use the health system are factored into insurer or self-insurer reserves to pay for all individual future coverage, they are in fact part of interstate commerce regardless of when or if they buy health insurance. It is a unique and self-limiting product. The Solicitor General made the point that purportedly was not in contest, that if the individuals would be mandated to make the purchase just as they were about to use the healtcare system then no one would question the constitutionality of this aspect of the law. Insurance cannot work that way because premiums must be paid in advance and invested to grow in order to have the funds to pay for all individual contingencies that will arise in the future. A point of sale process would lead to insolvency. Congress understood this when it wrote the law and the individual mandate was a rational exercise of Congressional power to preclude inaction which would be detrimental to interstate commerce.

I tend to believe all the Justices understand this. Clearly Justices Ginsberg, Kagan, Breyer and Sottomayor understand it as they kept tying to help the belaboured Solicitor General out by making arguments he needed to make. Chief Justice Roberts who was impressive in decorum and questioning, asked about burial insurance which has a few elements similar to health insurance, but is critically dissimilar: it does not require repetitive use and is non-catastrophic. Like auto insurance it does not need the extensive reserve build-up period as does health insurance. Justice Alito also understood the insurance agrument, although he is likely to find fault with the legislation. Justice Scalia would probably be better served if he did not speak, as his examples were sophomoric.

The critical Justice is presumed to be Justice Kennedy. To me he seems to appreciate two critical aspects of this part of the case and of the entire case. The first is the political aspect. The Supreme Court must give deference to Congress. I believe he and the other Justices recognize that after the so-called Bush-Gore decision, the Court’s reputation as a perceived independent apolitical body could be severely damaged if their decision in this case is is close and ideologically biased. It is not just the Administration that carries a heavy burden in this case. The Court could be perceived to be partial and in turn would deprive millions of people health insurance in doing so. Justice Kennedy has concerns about liberty, but our government was founded on the basis of life, liberty and the pursuit of happiness. You do not get to liberty if you are dead or incapacitated because you did not have health insurance to provide you with healthcare to survive. More important, from a business standpoint it will be difficult to unwind much of this law as systems are already or will soon be in place. The scheduled implementation of the law was a gambit by the Administration to retard such judicial action, as well as to allow for administrative implementation. The second critical aspect, is to give the Court cover to find this constitutional, by describing how this is a limited use of Congress’ enumerated power under the interstate commerce clause, so that Justice Scalia’s broccoli will not be regulated in the future. The Solicitor General perhaps eventually came to understand this half-way through his argument,but was not pounding this home. Fortunately, I think Justice Kenney is wise enough to reach a decision finding limitation without having to rely on the Solicitor General’s performance. The Court knows, that if the election gives Republican’s a majority in both Houses and elects their candidate as President, the next Congress and Administration will amend or scrap the law, making this decision moot.

We will know in June.