History behind Obamacare case

Financial Review

PUBLISHED: 31 Mar 2012

Anna Bernasek

All eyes turned to Washington this week as the Supreme Court examined President Barack Obama’s controversial health care law. After this week’s arguments, the Supreme Court will work quietly for about three months and then deliver what promises to be a momentous decision.

In the US, commentators offered predictions and guesses about which side would win. That’s understandable, since after all, Obama’s entire healthcare reform bill is at stake. Healthcare repeal would be a glittering trophy for Republicans in this highly charged election year.

Yet despite all the focus on health care, it seems there’s a much bigger game being played for a far more valuable prize.

To see what’s really at play, take a look at the case before the Supreme Court. In March 2010, a respectable majority of Congress approved President Obama’s healthcare legislation requiring health insurers to provide coverage not only to healthy Americans but sick Americans too.

Not wanting to drive up costs, the government added a law requiring every American to have health insurance or pay a penalty added to their income tax. Around 50 million Americans, about one in six, don’t have any health insurance. The idea was that making all those people pay premiums would offset the burden of covering those who are not covered due to a costly illness.

In order for Congress to pass any law it must rely on a specific authority granted under the US Constitution. If it’s not authorised in the Constitution, Congress simply can’t do it. So in this case, Congress relied on a provision called the “commerce” clause.

The commerce clause gives the US government the power to “regulate commerce … among the several states”. That authority is the foundation for a whole mountain of legislation, covering among other things labour and employment regulation, worker safety, financial regulation and environmental protections.

So the question before the Supreme Court is whether the health insurance reform falls into the category of regulating commerce or not.

Opponents of the law seized on the so-called “individual mandate” in the law that requires individuals to buy health insurance. They claim making people buy something is an unprecedented expansion of federal power.

And that would be interesting if it were true. But until the court agreed to hear the case there wasn’t much to dispute about the subject. The last time the Supreme Court decided a significant case on the commerce power was in 1942. Then conservatives were enraged by president Franklin Roosevelt’s energetic responses to the Great Depression. Progressive legislation in the 1930s brought federal government influence into areas it had formerly steered clear of. In response to FDR, a huge conservative backlash that continues today sought limits on government power.

Back in 1942 Roscoe Filburn, an Ohio farmer, raised wheat on his own land for consumption by his livestock. Filburn ignored federal regulations limiting the amount of acreage he could plant with wheat, growing more than his share. The limits were part of a nationwide scheme to support commodity prices in the face of the devastating deflation of the Great Depression. When Filburn refused to destroy the excess wheat, the government took him to court.

It was a striking case. Could the government, as part of its power to regulate commerce, tell a farmer not to grow a crop on his own land for his own animals? In a landmark decision, the Supreme Court found the government did indeed have that power.

Looking back, the implications of the Filburn case were profound. Since 1942, it has been settled law that Congress has the power to act in virtually any area so long as a decent argument can be made that it relates to commerce.

Up to now most constitutional lawyers considered the commerce power to have few if any practical limits. And over time law after law relied on the commerce power for its justification. So it’s interesting that the court is revisiting something that hasn’t been seriously questioned for 70 years.

The motivations, of course, go way beyond health care. After all, the basic scheme of Obama’s health insurance law was a Republican idea. In the early 1990s, conservative groups known as the Heritage Foundation and the American Enterprise Institute dreamt it up in response to Hillary Clinton’s healthcare plan.

Substantively, there’s a lot in the law for conservatives to like. Requiring the young and healthy to pay for insurance they don’t need shifts a financial burden from the public treasury to a broad swath of individuals, in effect operating as a regressive tax. That’s something Democrats usually detest, but in this case they held their noses and accepted it in order to get the rest of the health care bill through.

So it doesn’t make sense that conservatives are against the law itself. What they really object to is a broad reading of the commerce power. Virtually every progressive achievement of the 20th century – social security, medicare, environmental protection, financial regulation – depended on the commerce clause for its validity. For those who believe the government’s influence should be scaled back, the commerce clause is perhaps the ultimate prize.