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Will Bogus Policy Arguments Swing the Supreme Court?

Several dozen organizations filed “friend of the court” briefs for the lawsuit challenging the Affordable Care Act. And virtually none of these briefs are likely to have much impact. But, based on what transpired at oral arguments, one brief appears to have gotten the attention of conservative justices. That is deeply worrisome, because the brief betrays some fundamental misunderstandings of how health care actually works. 

The brief comes from the American Action Forum, a conservative advocacy group that opposes the law, and has the signature of 101 economists and policy experts. It is one of two such briefs that the Court received. The other came from a group of economists and experts who support the law. Superficially, they might seem to carry equal weight. But look closer and you’ll spot a few differences.

The list of scholars who support the law reads like a who’s-who of the nation’s most respected health care experts, including some (like Michael Chernew) who aren’t known for outspoken advocacy on behalf of health care reform, as well as and others (like David Cutler and Jon Gruber) widely acknowledged, even on the right, to have done the most influential original health care research of our time.

The list also includes Kenneth Arrow, the Nobel laureate whose 1963 paper “Uncertainty and the Welfare Economics of Health Care” is among the most important papers on health care ever published. Among the other Nobel laureates joining Arrow are George Akerlof, who won for research into asymmetric information, and Peter Diamond, who won for research on labor markets and “search frictions.” Both areas of research have direct relevance and applications to health care.

And the list of scholars opposing the law? It includes such luminaries as Phil Gramm and Arthur Laffer. Yes, that Phil Gramm and that Arthur Laffer. And while the list includes some more legitimate scholars, including a pair of Nobel Laureates, none of them have particular expertise in health economics. Conspicuously absent from the list are the most well-respected economists who tend to line up with conservatives on health care, such as Joseph Antos, Mark McClellan, and Gail Wilensky.

Does any of this matter? Apparently so, given the quality of arguments these experts critical of the law make.

Jill Horwitz and Helen Levy, one a law professor and the other an economist at the University of Michigan, highlight a few of the brief’s more dubious statements in a recent blog post for Health Affairs. Probably the most important is the suggestion that health care is not fundamentally different from other goods. This claim is a linchpin of the plaintiffs’ argument in the case: If health care isn’t different from other goods, allowing the health insurance mandate would, according to the law’s critics, allow the government to pass a broccoli mandate.

Horwitz and Levy explain why that claim is wrong, citing Arrow’s seminal paper:

From an economic perspective, the market for health care is characterized by multiple and substantial departures from the assumptions of perfect competition. As Kenneth Arrow explained in a seminal 1963 article, the most salient of these are uncertainty about the demand for care, which gives rise to the market for insurance, and information asymmetries in the market for insurance that result in adverse selection. These departures from perfect competition result in inefficiency.
The key insight from economics is that in the presence of these significant market imperfections, appropriately structured government intervention—which in this case means guaranteed issue, community rating, and an individual mandate—can actually promote efficiency, solving the problem of market failure and making the pie bigger for everyone. This is never the case in perfectly competitive markets, where government intervention may be desirable for other reasons, such as redistribution or the imperative to raise revenue, but cannot improve the efficiency of the market. Markets for cars or broccoli, unlike the market for health insurance, are very close to the ideal of perfect competition. Intervention in these markets–for example, forcing people to buy American-made cars to shore up the financial position of the automakers–is unambiguously inefficient.
The distinction between competitive markets and the health insurance market, which is filled with failures, was absent from the oral arguments. Instead, some Justices, relying on the AAF brief, asked questions suggesting that health insurance markets function just like other markets. Justice Scalia, for example, explained to [Solicitor] General [Don] Verrilli that, “if people don’t buy cars, the price that those who do buy cars pay will have to be higher. So you could say in order to bring the price down, you are hurting these other people by not buying a car.” Mr. [Paul] Clement, arguing for the respondents, drove the point home when he said, “When I’m sitting in my house deciding I’m not to buy a car, I am causing the labor market in Detroit to go south.”
Forcing people to buy cars would address no market failure and would redistribute resources (from consumers to car producers) in a way that is inefficient. Congress may want to intervene in the market for cars for unrelated policy reasons, perhaps to achieve some redistributive goals. But economists and policymakers interested in the efficient functioning of markets would not wish to do so.

Nor is that the only problem with the brief. It’s actually riddled with misstatements and basic errors, including some Horwitz and Levy didn’t mention. Among them:

1. The brief claims that “The ‘national health care market’ ... is nothing more than an aggregation of disparate local healthcare markets”—and, thus, not a matter of interstate commerce subject to federal legislation. It’s difficult to believe that anybody with cursory knowledge of health care, let alone people who claim to be experts, could write these words in good conscience. Just for starters, large companies like those in the Fortune 500 “self-insure,” which means they pay directly for the expenses of employees in multiple states. Hospitals near state borders, particularly sophisticated teaching institutions that attract cases from long distances, routinely deal with insurers from other states. And so on. 

2. The brief repeats the bogus claim, widespread in policy as well as legal debates, that the Affordable Care Act doesn’t allow people to purchase catastrophic insurance. So, one more time: The law allows people buying coverage through the new exchanges to purchase “bronze” plans that would be roughly equivalent to the high-deductible, catastrophic policies that come with federally qualified Health Savings Accounts—the model for catastrophic coverage that conservatives typically cite. The law would allow younger people to buy even skimpier coverage. (As I’ve noted previously, I consider this a bug, not a virtue, of the Affordable Care Act. But it ought to satisfy the legal argument.)

3. The brief states that many of the uninsured pay the full cost of their medical care—or even more, because hospitals typically give insured patients deep discounts from official prices. This is wildly misleading. Uninsured patients sometimes cover the full cost of physician and outpatient visits, but very few can pay the exorbitant price of even moderate hospital care. A 2008 Health Affairs study found that, on average, uninsured patients faced $1,686 in annual health care costs—and paid just $583 of it. 

4. The brief assumes that the mandate won’t affect the number of people who enroll in Medicaid. The available studies and projections suggest the mandate would actually make a substantial difference, of several million people.

At this point, the justices have likely made their decisions and are putting the finishing touches on their opinions. Here’s hoping they relied on sounder arguments than the ones in this brief.

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