Corporate Research Group’s Weblog

The best exchange in day three of arguments before the U.S. Supreme Court over the constitutionality of ObamaCare wasn’t an exchange at all.  It was a few closing remarks from Donald Verrilli, solicitor general, Dept. of Justice, on what healthcare reform really means.  Since it’s my feeling that supporters of the law are going to lose this case, I’ll give Verrilli the last word on what’s at stake.

The Medicaid expansion that we’re talking about this afternoon and the provisions we talked about yesterday, we’ve been talking about them in terms of their effect as measures that solve problems… in the economic marketplace that have resulted in millions of people not having health care because they can’t afford insurance.

There is an important connection, a profound connection, between that problem and liberty. And I do think it’s important that we not lose sight of that.

That in this population of Medicaid eligible people who will receive health care that they cannot now afford under this Medicaid expansion, there will be millions of people with chronic conditions like diabetes and heart disease, and as a result of the health care that they will get, they will be unshackled from the disabilities that those diseases put on them and have the opportunity to enjoy the blessings of liberty.

And the same thing will be true…for a husband whose wife is diagnosed with breast cancer and who won’t face the prospect of being forced into bankruptcy to try to get care for his wife and face the risk of having to raise his children alone. And I could multiply example after example after example.

In a very fundamental way, this Medicaid expansion, as well as the provisions we discussed yesterday, secure of the blessings of liberty.

It pains me to say (since I’m a supporter of ObamaCare) but it looks like opponents of the law are going to get a lot of what they want. 

In the final day of arguments before the U.S. Supreme Court over the law’s constitutionality, enough justices seemed (to me at least) to be sympathetic to the idea that the entire law should be scrapped–or at least to the notion that if the insurance mandate is deemed unconstitutional (likely based on Tuesday’s arguments), then other key components of the law don’t work.  That would include guaranteed issue and community rating–the heart of the law–but it also could include other parts as well. 

The court also heard arguments over the Medicaid expansion.  That went better for ObamaCare supporters, but still left me feeling nervous.  The debate here is whether the Medicaid expansion is structured such that states have no choice but to take it or risk losing existing Medicaid funding–which could be deemed unfair.

The whole three days of arguments left me with a sinking feeling.  Let’s face it.  Conservatives stole the show.  Just getting this far is a huge victory for them.  I’m not saying they are right.  I’m saying I think they’re going to win and that makes me sad.

All-in-all, it was a rough day for the health insurance mandate, which was ripped by conservative justices and questioned by the two justices considered swing votes: Roberts and Kennedy.  Our exchange of the day is between Justice Kennedy and Michael Carvin of Jones Day, who is representing parties opposed to the mandate:

MR. CARVIN: It is clear that the failure to buy health insurance doesn’t affect anyone. Defaulting on your payments to your health care provider does. Congress chose for whatever reason not to regulate the harmful activity of defaulting on your health care provider. They used the 20 percent or whoever among the uninsured as a leverage to regulate the 100 percent of the uninsured.

JUSTICE KENNEDY:…I agree that that’s what’s happening here….And the government tells us that’s because the insurance market is unique. And in the next case, it’ll say the next market is unique. But I think it is true that if most questions in life are matters of degree, in the insurance and health care world, both markets–stipulate two markets–the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries.  That’s my concern in the case.

Mark Bertolini, chief executive of Aetna, on the individual mandate:

Even as it exists today, the individual mandate is weak and still presents problems because the penalty is so low. If you get rid of it, I don’t know that it makes all that much of a difference.

Opponents of the health insurance mandate–and of ObamaCare in general–ask the question: If the government can force you to buy health insurance, then why can’t it force you to buy broccoli?  After all, broccoli is good for your health too.  Their argument appears to be that mandating the purchase of health insurance is a slippery slope that will lead to the federal government stomping on both our personal freedom and our Constitutional right not to eat broccoli. 

This is the kind of debate I love.  Maximum silliness.  Not being an attorney, I can’t speak to the legal validity of the broccoli argument or to the broader discussion concerning interstate commerce and Congress’s authority to regulate it.  But I do have some issues with the broccoli example.  Here are five:

1. There are lots of substitutes for broccoli.  You can buy kale or escarole or any number of other green vegetables.  There really aren’t any substitutes for health insurance besides unlimited wealth, Medicaid (if you’re poor), Medicare (if you’re old) or becoming a citizen of a nation with universal healthcare.

2. I’m guessing a government mandate to purchase broccoli would raise the price of broccoli at least in the short-term.  Even if supply eventually caught up with demand, I’m guessing the price of other green veggies would likely rise as farmers devote more acreage to growing broccoli.  (I’m from the Bronx, so if any readers out there actually know something about growing stuff, feel free to chime in).  In contrast, a government mandate to purchase health insurance will lower the price of health insurance by bringing more healthy people into the risk pool.  As the state of Massachusetts notes in its Supreme Court brief supporting the mandate: “Massachusetts now finds that its efforts to stop healthy people from opting out of purchasing health insurance have increased health-plan enrollment and helped decrease the rate of premium growth.”

3. Just because you buy broccoli that doesn’t mean you’re going to eat it.  Ask any kid.  That suggests the benefits of a broccoli mandate aren’t concrete.  Furthermore, while healthy foods–and wellness in general–are very good things because they increase our longevity and quality of life, their impact on healthcare costs is less clear.  For example, evidence suggests that longer life means living with more medical conditions that require more treatment. It would appear that you have to pay the piper at some point.  In contrast, the benefits of a health insurance mandate are very clear: a broader risk pool and lower premiums. 

4. People who don’t eat broccoli (and I’m speculating here) typically don’t find themselves in acute need of broccoli, causing them to race to a 24-hour emergency broccoli kitchen where they receive broccoli at no charge–the cost of which is passed along to other broccoli eaters.  In the case of the uninsured, that’s exactly what happens.  HHS quotes data suggesting uncompensated care adds $1000 to a typical family’s annual healthcare premiums.  Only the really wealthy without health insurance have a legitimate beef–assuming they actually pay for their care out-of-pocket. 

5. It’s not exactly clear to me why mandating the purchase of health insurance is all that different from other government mandates: auto insurance, payroll deductions for Medicare and unemployment insurance, or ensuring kids get a proper education.  Furthermore, we’ve been able to mandate things like the wearing of seatbelts, for example, without going down the slippery slope of requiring crash helmets and flame-retardant suits for all drivers. 

Maybe the best argument I’ve heard against the mandate is that it’s a cop-out.  To wit: Democrats didn’t have the political will to push for single-payer healthcare (e.g., Medicare for all) so they created this Frankenstein monster of a law known as ObamaCare based on RomneyCare that utilizes an unconstitutional concept–the mandate–invented by the very conservatives who now oppose it. 

No matter how the Supreme Court decides, one thing remains unchanged: there’s only one way I eat broccoli–blanched, chopped and mixed with pulverized anchovies, olive oil and Romano cheese over ziti.  Yum!

I’ll be posting the best exchange from each day of the U.S. Supreme Court arguments on ObamaCare.  Today’s involves Justice Kagan and attorney Gregory Katsas of Jones Day (Washington), who is representing the State of Florida and others opposed to the mandate:

MR. KATSAS: [States] are injured by the mandate because the mandate forces 6 million new people onto their Medicaid rolls. But they are not directly subject to the mandate, nor could they violate the mandate and incur a penalty.

JUSTICE KAGAN: Could I just understand, Mr. Katsas, when the States say that they are injured, are they talking about the people who are eligible now, but who are not enrolled? Or are they also talking about people who will become newly eligible?

MR. KATSAS: It’s people who will enroll–people who wouldn’t have enrolled had they been given a voluntary choice.

JUSTICE KAGAN: But who are eligible now.

MR. KATSAS: That’s the largest category….That particular class is the one that gives rise to, simply in Florida alone, a pocketbook injury on the order of 500 to $600 million per year.

JUSTICE KAGAN: But that does seem odd, to suggest that the State is being injured because people who could show up tomorrow with or without this law will–will show up in greater numbers. I mean, presumably the State wants to cover people whom it has declared eligible for this benefit.

In other words, Katsas is saying states are opposed to the mandate because it would require poor people to sign up for benefits to which they are already entitled.  (Either way, the poor aren’t subject to any penalty).

Judge Ginsburg goes on to suggest that the reason why people don’t sign up for Medicaid may be that “they haven’t been given sufficient information to understand that this is a benefit for them.” 

Katsas’ reply: “It’s possible.”

From Cowen & Co.:

Our Supreme Court expert assigns a 65% probability that the individual mandate will stand, with almost no chance that the individual mandate alone will be struck down. There is a 30% probability that if the individual mandate/guaranteed-issue and community-rating provisions of PPACA are struck, other aspects of commercial reform, including exchanges and private market provisions will be struck as well, according to our expert. There is a low probability that Medicare or Medicaid provisions will be impacted by the Court’s rulings.

Here’s what a dying industry really looks like.

Source: Carpe Diem.  Hat tip: Newspaper Death Watch

Time to reminisce: I covered newspapers in a prior life (up until 1997), and like many other analysts I had predicted the industry would experience a long slow decline as new media cut into print profits.  I did not expect such a rapid drop-off.  Same for yellow pages–another local print media in my prior analytical realm. 

So perhaps I’m being optimistic yet again in arguing that while ObamaCare will cut into long-term health plan profits, it won’t result in the death of the industry. 

In an interesting analysis, Citi shows that profit growth among publicly traded health plans over the past five years was driven entirely by billions of dollars in share repurchases.  “Absent share repurchase, the managed care industry would have reported no earnings growth between 2007 and 2011,” Citi reports. 

It’s true that health insurers were struggling through a cyclical downturn until 2010.  But even last year–when publicly traded plan profits hit a record high–share repurchases were needed to offset declining operating profits, Citi says.  Publicly traded plans are also generating far less cash flow than before, Citi says.

I still don’t see the industry disappearing anytime soon, but the analysis suggests health plans had better sharpen their pencils if they want to avoid a big fall.

As the U.S. Supreme Court considers whether ObamaCare’s expansion of Medicaid is constitutional, here’s another question: Why is Medicaid a state program and not funded by the federal government like Medicare?  Answer: I don’t know.

Meanwhile, here is a nice summary of the arguments on both sides of the legal debate over the Medicaid expansion, plus a Bloomberg article outlining the potential impact on Medicaid health plans.  A further analysis appears in the January 2012 issue of the New England Journal of Medicine.

In the end, Mitt Romney took Ohio and most of the other states up for grabs in last night’s Super Tuesday Republican presidential primary.  There’s some buzz about how Santorum did better than expected, and Newt wants us to think he still has a shot.  But make no mistake: Romney is winning the nomination.

Mitt tries to say the “right” stuff to appease the nutty fringe of his party, but the reality is he’s a moderate conservative–someone the late Molly Ivins might have called “one of our better right-wing millionaires.”  Massachusetts healthcare reform proved his willingness to compromise–even if he does believe corporations are people too.  Or as the late Bob McAllister might say, “Wacka-doo, wacka-doo, wacka-doo.”

But a lukewarm conservative isn’t beating Obama.  Ask John McCain.  All of which indicates Obamacare is here to stay.  The Supreme Court will have its say on the individual mandate, but the bulk of the law will be implemented.

Does Obamacare have flaws?  Certainly.  Both liberals and conservatives know that.  Could we have reached a better compromise if Republicans weren’t insufferable and if Democrats weren’t in the pocket of the healthcare industry?  Probably.  Did the President play politics by highlighting the law’s good points and down-playing its limitations?  No doubt.

But millions of uninsured and under-insured people will get solid healthcare coverage for what amounts to a tiny incremental increase in cost trend, and the law contains provisions aimed at bringing down long-term spending.  If it can do that–and if it can do so without increasing the deficit, as promised–then you’d have to admit that Obamacare is a resounding, earth-shattering, unprecedented success.

So maybe instead of nitpicking the law’s flaws–as opponents continue to do like a broken record–maybe the thing to do is fix what’s bad, keep what’s good, and move on.