It was as if the court forgot that the private insurance market does not function as a normal market. If you are not employed and you want to purchase insurance in the private market, you cannot unilaterally decide to do so. An insurer has to accept you as a customer. And quite often, they don’t. Insurers prefer group plans, with lots of people enrolled to spread the risk. Can you blame them? The individual consumer is a lot of work, is a higher risk and produces relatively little revenue.
The Government Accountability Office studied this problem last year and found a range of denial rates that vary by state and by insurer. On average, 19 percent of applications nationwide are denied. One-quarter of insurers denied more than 40 percent of the applications they considered. These denials are not limited to deadly illnesses but include many minor reasons. Expect to be denied if you have asthma, if you take just about any prescription medication, if you are more than 15 percent overweight. Expect to be denied if a doctor has recommended any procedure for you, no matter how insignificant. Basically, expect to be denied.
I’m astonished that this information was not laid out in oral argument and that no questions were asked about it. I believe that lawyers on both sides of this argument, and the justices hearing the case, have always been employed and always been covered by employer-provided health insurance. Perhaps it simply does not occur to them that if they were to try to purchase insurance, they might not be able to.
The justices repeatedly asked: If the government can require you to purchase insurance, what else could it require you to do? What are the limiting conditions to this breadth of control?
The government muffed its response. To me, the answer is obvious. There are two simple limiting conditions, both of which must be present: (1) it must be a service or product that everybody must have at some point in their lives and (2) the market for that service or product does not function, meaning that sellers turn away buyers. In other words, you need something, but you may not be able to buy it.
Let’s test the examples presented to the high court: Can the government force you to eat broccoli? This proposition fails on both counts. Nobody must eat broccoli during their lives, and the market for broccoli is normal. If you want broccoli, go buy it. Nothing stops you.
Can the government force you to join a health club? Again, double failure. You don’t need to join a health club. Maybe you should, but you don’t have to. And, if you want to join one, plenty of clubs would be happy to admit you. Indeed, can you imagine a health club turning people down because they are too fat, the way insurers turn people down because they are too sick?
How about burial services? While this example passes the first condition — it is a service that everybody will need — it fails the second. There is a clearly functioning market for burial services. If you want to purchase a burial or a cremation, no seller of those services will turn you away.
The health insurance market meets both criteria. Everybody will need health services at some point. And as long as the United States doesn’t provide national health care, the only reasonable method for most people to pay for those services is through insurance. But here, the market simply does not work. Sellers of health insurance turn away purchasers, and in great numbers.
Although the Affordable Care Act is huge and enormously complex, the point of the legislation is straightforward. It aims to fix the market for health insurance by prohibiting sellers of the service from declining buyers. Why did Congress not pass a simple law just requiring insurance companies to accept all applications? Because such a law would not repair the market and would probably make it worse. With only sick people seeking insurance — because healthy people would wait until they got sick, knowing that insurance was guaranteed — coverage would become overwhelmingly expensive and impossible for most Americans to afford.
The only answer is to expand the pool and spread the risk, which lets insurers have a rational business model. Short of government-provided health services or a government-sponsored national insurance plan, the Affordable Care Act is the next best shot at fixing this broken market.