Affordable Care Act: A Libertarian Take

Cato Institute chairman dissects new law

by Andrew Call

Robert A. Levy, Ph.D., chairman of the Cato Institute, a libertarian think tank based in Washington D.C., addressed students at a lecture sponsored by the USC Federalist Society regarding the constitutionality of the Patient Protection and Affordable Care Act, or as its detractors have called it, “Obamacare.” Levy’s primary concern with the act is the mandate that requires U.S. residents to buy a prescribed health insurance policy or pay a penalty.

Robert Levy

Levy argued that the mandate to purchase insurance is merely a subsidy for large insurance companies.

“(Obama) had the mandate to address a very real problem:  you couldn’t get coverage for preexisting conditions,” Levy said. ”Insurance companies aren’t stupid. They don’t insure houses after the fire has already begun. Or, if they do, they charge you a lot bigger premium.”

Levy says President Obama is forcing insurance companies to cover preexisting conditions without raising the premiums. But he added that for every governmental solution, a new problem tends to emerge.

“Not only are the insurance companies not stupid, but their customers are not stupid either,” Levy said.  “If you know that the insurance company is going to be required by law to cover preexisting conditions, you are not going to buy an insurance policy when you’re healthy.”

Levy suggested that would mean insurance companies would be unable to pay benefits to sick people, because the money used to do so—healthy people’s insurance payments—would be non-existent.

“So to solve that problem,” Levy said, Obama is “going to force them to buy insurance.”

Although advocates of the law claim that the mandate falls within the government’s power to regulate interstate commerce, Levy disagrees, arguing that health insurance is neither interstate nor commerce.

“There’s a law decision that says you can’t buy insurance interstate, so essentially there is no interstate market. And of course it’s not commerce, because this is not buying. Commerce is buying and selling.”

Supporters of the new law, however, refer to the 1942 U.S. Supreme Court case of Wickard V. Filburn to establish the constitutionality of mandated insurance purchases. In that case, the Supreme Court decided that because Filburn’s excess wheat growing practices—although the wheat was not being bought or sold—had an effect on the open market, the practices were considered commerce and interstate, and therefore subject to federal regulation.

Levy acknowledged that the modern interpretation of commerce has come to be defined by “economic acts” or growing, manufacturing, mining, distributing and consuming, in addition to buying and selling.

But it took until 1995 for the U.S. Supreme Court to define the scope of the law in regard to non-economic acts. In United States v. Lopez, the Court found that the possession of a gun within 1,000 feet of a school could not be considered a crime. In other words, because the mere possession of a gun is not an economic act, it was unconstitutional to regulate it under the interstate commerce clause.

Levy’s point was that even given our modern interpretation of the interstate commerce clause as defined by these two cases, Congress still does not have the power to mandate insurance purchases.

“The mandate is quite clearly a non-economic act because not only is it non-economic but it’s not even an act. It’s declining to engage in an act.”

Levy said that the participation of low-income individuals likely will shift insurance costs to insured people, because the former would be exempt from the new law’s insurance mandates. Levy also noted that uncompensated care amounts to $48 billion of the $2.4 trillion that Americans spend annually on healthcare, or two percent of the annual expense. This amount, he argued, is too small to validate an unconstitutional expansion in governmental power.

Levy suggested that “if you insure more people, you can be counting on the fact that they are going to consume more medical costs, and higher demand means higher prices…so Obama’s insurance policy is not only unnecessary; it actually exacerbates the problem.”