Analysis – Health Insurance and Broccoli

Here’s why health insurance is not like broccoli — Ezekiel Emanuel

April 02, 2012

APRIL 2 — The fate of universal healthcare coverage that the United States has been trying to achieve for over 100 years may boil down to broccoli.

The broccoli argument is simple and was frequently referred to in the recent Supreme Court arguments: If the government can require people to buy health insurance, why couldn’t it require people to buy broccoli, which also enhances people’s health? This question, at the heart of the conservative objection to the individual mandate to buy health insurance, illustrates the so-called limiting principle the Supreme Court must rule on: Under the Commerce Clause, does Congress have the constitutional power to compel people to act, in ways they might object to, when their inaction can harm others?

The High Court never got clear on why health insurance is not like broccoli and can thus be constitutionally regulated. There are two important differences that inform the principle for limiting congressional power to compel people to purchase goods and services.

First, as George H.W. Bush made quite clear, you need never eat broccoli. But unless you are a hermit in Alaska, you will use healthcare at some point in your life. Today, it is estimated that the uninsured use more than US$116 billion (RM348 billion) in healthcare services each year.

When they will need healthcare is unpredictable. If they are lucky — only at the end of their life. If they are unlucky, an accident, unplanned pregnancy or cancer diagnosis may compel an earlier need for a physician, hospital services, or both. What happens if they don’t have health insurance? Thankfully, doctors and hospitals don’t turn them away when they most need care. They give them the tests and treatments they need — at least to get over the emergency or acute episode. Thus, while it is feasible that you may never be engaged in the broccoli market, at some point, everyone — including the uninsured — will be engaged in the healthcare market.

Why couldn’t we let people voluntarily decide whether they want health insurance or not, instead of compelling them to buy the insurance with the mandate?

Unlike broccoli, when some people don’t participate in the health insurance market — 50 million people in 2009 — there are direct consequences for the insured who are participating. The costs of caring for the uninsured are shoved onto the rest of us through higher insurance premiums or taxes that hospitals, insurers and doctors must charge to recoup the costs of uncompensated care.

Voluntary health insurance exchanges piloted in several states without mandates all failed because healthy people opted out. Those who are relatively healthy figure the cost of insurance is too high, that they are subsidising insurance premiums for sicker people and they probably (it is a risk) won’t need the insurance because they are healthy. When some healthy people stop buying coverage, the premium goes up for the remaining slightly sicker people. Then, as premiums go up, more and more healthy people drop out, creating an inevitable downward spiral. This is cost-shifting from the uninsured to the insured, and it is true not just in theory, but in practice. We have tried many such exchanges, and they have all failed. Only the Massachusetts exchange has worked because of its mandate requiring healthy, as well as sicker, people to buy insurance.

The broccoli situation is entirely different. At the supermarket, you cannot get the person behind you to pay for your broccoli. If you don’t pay for broccoli, you don’t get it. Unless you steal the broccoli, you are not influencing the market by not buying it. And unlike healthcare, there is no cost-shifting in the broccoli market. If you don’t buy any broccoli, the price of broccoli for me is the same. Indeed you might lower my price, because demand for the product is lower.

Non-participation in the healthcare market has additional, more far-reaching effects. The market for health insurance is both complex and very fragile. If people only bought health insurance when they were sick, there would be no market. There would be no reason for insurance — you would just pay the doctor and hospital bills on an as-needed basis. The only way we can have a health insurance market, where we pay a set amount but get covered when we need services — is to have a diverse risk pool that includes healthy people, as well as sick people. It is important to notice that in this case, opting out of the market for insurance — inaction — has a profound effect on the market. It is not neutral. It leads to collapse of the market.

Thus, Congress decided to create a broad risk pool by requiring people who did not get their insurance through their employer — or through Medicare or Medicaid — to buy coverage through the exchange. Large employers understand the efficiency of this and basically create these broad risk pools by combining all their employees and insuring them together. That is why they get insurance at lower rates, typically, than small businesses or single individuals.

Again, broccoli is very different. The voluntary broccoli market works just fine today. If people voluntarily do not participate in the broccoli market, it will not collapse. Congress does not need to require people to buy it for the broccoli market to function. More important, unlike healthcare, no one needs broccoli. We all can live just fine without it, as if it never existed. There is a need for a health insurance market — we would all be worse off without it.

Justices Scalia and Alito seemed not to appreciate this crucial difference between health insurance and broccoli. Justice Scalia said: “If I don’t buy a Volt, I raise the price of Volts.” Wrong. The market for cars works fine even if there is no mandate to buy American-made cars like the Volt. There will be no collapse of the entire car market if people do not buy US cars, including the Volt. There may be closure of American car manufacturers, but that does not mean the collapse of the American car market. We would still be able to buy cars. Hence Congress cannot compel purchase of American cars.

These two differences between broccoli and health insurance translate into the important limiting principle that the justices were seeking: As part of its Commerce Clause powers, Congress can compel people to purchase a good or service when, because of market failure, the market collapses as a result of their refusal to participate and when they themselves will definitely need the good or service and would otherwise transfer the cost of using the service to the rest of us.

The difference between broccoli and health insurance is simple. It leads to a clear limiting principle. Congress can urge people to eat their broccoli, but not compel them to buy it, because the broccoli market will function regardless of what people do. Congress can compel people to buy their health insurance because otherwise there will be no health insurance market. — Reuters

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.