The Supreme Court Health Insurance Precedent No One Is Talking About
It turns out that the case challenging the ACA's individual mandate isn't the first time the Supreme Court has been confronted with questions about the interplay of the health insurance and health care markets. The previous case, called Blue Shield of Virginia v. McCready, 457 U.S. 465 (1983), is a decision dealing with the Sherman Act, not Constitutional issues. But the Court examined an issue that closely parallels one of the key issues in the individual mandate case. And it seems to have been totally missed in the debate.
A major issue in today's oral arguments before the Supreme Court on the individual mandate, as in the court of appeals' decisions, is whether the market the individual mandate seeks to regulate is the market for health insurance (in which some people who don't participate will be required to participate by the mandate) or the market for health care, in which almost everyone will participate at one point or another.
An exchange between several justices and Paul Clement, arguing for the 26 states challenging the law, focused on whether the two markets are in fact separable. Isn't health insurance just a way to pay for health care, as the government argues? No, according to Mr. Clement:
CHIEF JUSTICE ROBERTS: Well, Mr. Clement,the key to the government's argument to the contrary is that everybody is in this market. It's all right to regulate Wickard -- again, in Wickard against Filburn, because that's a particular market in which the farmer had been participating. Everybody is in this market, so that makes it very different than the market for cars or the other hypotheticals that you came up with, and all they're regulating is how you pay for it.
MR. CLEMENT: Well, with respect, Mr. Chief Justice, I suppose the first thing you have to say is what market are we talking about? Because the government -- this statute undeniably operates in the health insurance market. And the government can't say that everybody is in that market. The whole problem is that everybody is not in that market, and they want to make everybody get into that market.
JUSTICE KAGAN: Well, doesn't that seem a little bit, Mr. Clement, cutting the bologna thin? mean, health insurance exists only for the purpose of financing health care. The two are inextricably interlinked. We don't get insurance so that we can stare at our insurance certificate. We get it so that we can go and access health care.
MR. CLEMENT: Well, Justice Kagan, I'm not sure that's right. I think what health insurance does and what all insurance does is it allows you to diversify risk. And so it's not just a matter of I'm paying now instead I'm paying later. That's credit. Insurance is different than credit. Insurance guarantees you an upfront, locked-in payment, and you won't have to pay any more than that even if you incur much great expenses. And in every other market that I know of for insurance, we let people basically make the decision whether they are relatively risk averse, whether they are relatively non-risk averse, and they can make the judgment based on -
In other words, according to Clement, the health insurance market is distinct from the health care market because buying insurance is not the same thing as paying for health care in advance. You buy insurance to avoid risk, not to pay for things you'll buy later.
The counter-argument is that while that's true for most kinds of insurance, health insurance is fundamentally different. Why? Because when you buy homeowner's insurance, you are trying to avoid the risk of a financial loss if it turns out that a hurricane comes along and damages my house. But there's also the (better than 50%) chance that a hurricane won't come along.
When I buy health insurance, on the other hand, I'm not (only) protecting against the risk that I might need to go to the doctor at some point -- I know I'm going to go to the doctor. So it can be argued that I buy health insurance, at least in part, as a sort of pre-payment for my doctor's care (and to take advantage of the lower prices my doctor charges to the insurer).
And that's pretty much what the Supreme Court said in McCready. McCready was a participant in her employer's group health plan, provided by Blue Shield of Virginia, who sued Blue Shield based on an alleged conspiracy with psychiatrists to prevent reimbursement for treatment by psychologists. The issue was whether the injury she suffered by being denied reimbursement for treatment was too remote for her to have standing to challenge the conspiracy under the Sherman Act.
McCready was not actually a participant in the health insurance market because her employer purchased a group policy, but she was a participant in the health care market because she went to see a psychologist and paid for it (then sought reimbursement). Blue Shield argued that McCready lacked standing because the market targeted by the alleged conspiracy was the health insurance market, not the health care market:
Petitioners next argue that...the Section 4 remedy...is not available to McCready because she was not an economic actor in the market that had been restrained. In petitioners' view, the proximate range of the violation is limited to the sector of the economy in which a violation of the type alleged would have its most direct anticompetitive effects. Here, petitioners contend that that market, for purposes of the alleged conspiracy, is the market in group health care plans. Thus, in petitioners' view, standing to redress [457 U.S. 465, 480] the violation alleged in this case is limited to participants in that market - that is, to entities, such as McCready's employer, who were purchasers of group health plans, but not to McCready as a beneficiary of the Blue Shield plan.
The Supreme Court rejected that argument, explaining that "as a consumer of psychotherapy services entitled to financial benefits under the Blue Shield plan, we think it clear that McCready was 'within that area of the economy . . . endangered by [that] breakdown of competitive conditions' [457 U.S. 465, 481] resulting from Blue Shield's selective refusal to reimburse." In other words, although the conduct was directed toward the health insurance market, it had direct effects on participants in the health care market.
In a footnote, the Court also agreed with the court of appeals that the health insurance plan was really akin to a means for pre-paying for medical treatment, not an insurance policy in the usual sense:
Blue Shield Plans are not insurance companies, though they are, to a degree, insurers. Rather, they are generally characterized as prepaid health care plans, quantity purchasers of health care services.
The ultimate Sherman Act-specific holding of McCready has little to do with the individual mandate case, but the point is that the Supreme Court has already addressed the interplay of the health insurance market with the health care market, and has expressed a view that strongly suggests that they are not two independent markets.
Is McCready a silver bullet? Probably not. But it sure seems important to me that there is Supreme Court precedent on an issue that is so central to the debate. Certainly important enough to at least enter the discussion. Why isn't anyone talking about it?