On Tuesday, the Supreme Court heard arguments as to whether or not it should overturn Obamacare’s individual mandate — the law’s requirement that every American buy health insurance, or pay a fine. On Wednesday, it heard arguments on “severability,” a technical matter nearly of equal importance. An unwise decision on their part could well destroy the market for private-sector health insurance. Of the 50 million Americans without health insurance, according to the U.S. Census, 55 percent — nearly 28 million — are below the age of 35. These young people, by and large, don’t buy health insurance because it’s a raw deal for them. Because of numerous government subsidies, regulations and mandates, a healthy young American who seeks health insurance is likely to have to pay far more in premiums than he will actually consume in health expenses.
Obamacare makes this problem far worse. Its “community rating” provision forces insurers to charge their oldest beneficiaries no more than three times what they charge their youngest ones. This, despite the fact that, in the real world, those nearing retirement consume six times as much health care as those entering adulthood.
In other words, the law forces the young to pay dramatically more for health insurance, in order to subsidize wealthier middle-aged people.
The law contains a large number of other mandates that will drive up the cost of insurance. It forces insurers to cover services and treatments that most young people don’t need. In certain circumstances, it forces all consumers to buy very generous coverage, with lower deductibles and co-pays, that will drive premiums upward. Most famously, it prevents insurers from turning away those who are already sick — those with “pre-existing conditions” — a provision that forces those who are healthy to pay more for their insurance.
These mandates are the reason why Obamacare forces everyone to buy insurance. With the expected price increases, young people will become even more averse to buying insurance, because they just won’t consume enough health care to justify it. If only older, sicker people buy insurance, it will become even more expensive, leading even more people to drop their coverage. Eventually, this vicious cycle — which economists call an “adverse selection death spiral” — destroys the insurance market. Insurers are eventually forced to sell an extremely expensive product that almost no one will buy.
If the Supreme Court overturns the individual mandate, while leaving the rest of Obamacare intact, it could thus destroy the private-sector insurance market.
Ideally, the Court would strike down the law in its entirety. But if the Court seeks a middle ground, it will be operating in dangerous territory. The justices will have to turn themselves into health policy wonks, going through the entire 2,300-page law with a fine-toothed comb, yanking out each and every provision that will make health care meaningfully less affordable for uninsured Americans.
The Court’s nine law-school grads are unlikely to get it just right. None of the lower courts that overturned the mandate did so, save one in Florida where the entire law was struck down. It will remain in the hands of ordinary Americans to finish the job in November. And perhaps that’s as it should be.
Avik Roy is a Senior Fellow at the Manhattan Institute, and author of The Apothecary, the Forbes.com blog on health-care and entitlement reform.
