Friday, March 30, 2012

“A Rose is a Rose is a Thorn, and Other Stories”

Sydney M. Williams

Thought of the Day
“A Rose is a Rose is a Thorn, and Other Stories”
March 30, 2012

Oral arguments represent the theater that is the Supreme Court. Decisions are considered and decided behind closed doors. Keep in mind, the only people who have probably read the entire 2,163,744 words of the Affordable Care Act (ACA) are those clerking for the nine justices. The media and those of us in the markets, however, deem it critical to note every word and parse every sentence, in a search for an illusive answer we hope to detect, but that nobody likely will.

The three days of oral argument came to an end Wednesday, with nobody being any wiser as to which way the justices will vote. It still looks like a 5-4 decision, suggesting, as we know, politics does play a role in matters of judicial decisions.

The first day was spent determining whether the fee to be paid by those opting out of the requirement to buy healthcare insurance was a tax or a penalty. That one appeared reasonably easy…both sides wanted the same thing…it will be a penalty – at least for the day – allowing the case to continue. Under the law, if the penalty were a tax, then no suit could be brought until January 2014 when the penalty (tax) would first be assessed. A tax is a tax, until it becomes a penalty and then, once again, a tax.

Congress and the President, you will recall, did not want to call the penalty a tax, because, one, the Affordable Care Act was supposed to save money, not cause taxes to rise and, two, because the Democratic Congress knew they would be unable to push through a bill – as controversial as this bill was – that bore a tax. Thus day two was about the mandate, the heart of the bill. The ACA “mandates” that if people do not buy health insurance, they must pay a penalty. The mandate is crucial to the success of the Act, for without those penalty payments, insurance costs would be far higher and could (would) cause insurance companies to exit the space – leaving open the possibility the government would insert a single payer, perhaps their intent all along.

Thus the debate on day two centered on the constitutionality of a mandate under the Commerce Clause, and began discussion regarding the possible severability of other aspects of the Act should the mandate be deemed unconstitutional. (Justice Ginsburg wanted to know if this was to be a wreckage or a salvage operation!) After two hours of oral debate, the general sense by most observers was that the mandate may not survive. Justice Anthony Kennedy’s statement to Obama Solicitor General Donald Verilli was telling. “Under the mandate,” he said, “the federal government has a duty to tell the individual citizen that it must act, and that is different from what we have in previous cases and that changes the relationship of the federal government to the individual in a very fundamental way.”

The cynic in me says be wary of voiding the mandate without voiding the entire bill, for if severability is allowed then law professors Richard Epstein and David Hyman may prove prescient. Earlier this month, in a Manhattan Institute brief, they wrote: “Key provisions in the law are calculated to undermine the long-term viability of the private insurance market by making existing coverage unaffordable or unavailable at any price.” The Act states that insurance companies must accept all patients regardless of preconditions. When actuaries tabulate the price they must charge the insured, without payments from the mandate’s penalty (tax), the cost may prove to be exorbitant, and thus not economically feasible.

Should the mandate be declared unconstitutional, one would suspect the entire Act to be declared unconstitutional. But I am not so certain. Cleverly, the Obama Administration allowed provisions of the bill to already begin. For example, young people under the age of 26 have been allowed to remain on their parents’ insurance. There are 2.5 million of these young adults, all of whom would be tossed off the insurance rolls. Also, disallowing those with preexisting conditions would indeed be a hardship. Resolution won’t come until the Court’s session ends at the end of June. But if the mandate is declared unconstitutional and the balance of the Act is allowed to stand, the severability issue may linger; and that could mean an eventual step toward a single payer and nationalization of the industry, the goal, I am sure, of the adroit Mr. Obama.

Day three continued on the issue of severability and the fate of Medicaid, which under the ACA will be asked to pick up an additional estimated 20 million people, with the federal government contributing about 90% of the costs, and the rest to be picked by already financially strapped states. The most encouraging thing I read – from the perspective of one who thinks the entire Act is a canard – was the defensive tone of an editorial in Thursday’s New York Times. When Justice Anthony Kennedy sensibly suggested that it would be more extreme to preserve part of the statute than to strike down the whole thing, because that would alter Congress’ intent. The Times retorted, like a spoiled child, conveniently ignoring the legal niceties with which the Justices are contending: “But if that is his worry, why not uphold the mandate to avoid having to figure out where to draw the line?”

As to the question of Medicaid and whether forcing the states to take on more expense was coercive, the conclusion of most was that that aspect of the Act would be allowed to stand, despite the threat that if states did not go along the federal government might withhold normal Medicaid funds. The term “coercive” did, however, elicit a bizarre comment from Justice Elena Kagan: “It’s a boatload of federal money for you to take and spend. It doesn’t sound coercive to me.” Her comment beautifully illustrates the problem with Washington. Money is deemed to be free. There seems little concept that whatever money government spends has its origin in the hard work of the people. It is not the federal government’s gift to the states. It is the people’s gift to the government, and those in government have a fiduciary responsibility to spend it wisely, and to remember from whence it came.

Keep in mind that I am no expert in this field (nor am I in any!) We have at our firm, in Brian Wright, an analyst who has made a career studying this issue and I would urge you to read his assessments. I simply look at the issue from a perspective of individual rights, in a world where government keeps assuming increased powers, with the effect of increasing dependency and decreasing responsibility. The risk with this Act, as it in all cases where the government overreaches, is that the rose that is freedom becomes a thorn that is tyranny.

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