Justice Kennedy, “Actuarial Risk,” and the Individual Mandate’s Unconstitutionality

As most experts and commentators have observed, Justice Kennedy and the other  more conservative Justices all strongly suggested during oral argument that the mandate was unprecedented and unbounded (and thus likely unconstitutional).   Orin and some others, however, have highlighted a few questions by Justice Kennedy concerning “actuarial risk” that seem favorable to the government.  (Indeed, it is quite striking that these may be the only moments of 6 hours of oral argument that are.)   In particular, they have emphasized the following questions:

Is the government’s argument this — and maybe I won’t state it accurately. It is true that the noninsured young adult is, in fact, an actuarial reality insofar as our allocation of health services, insofar as the way health insurance companies figure risks. That person who is sitting at home in his or her living room doing nothing is an actuarial reality that can and must be measured for health service purposes; is that their argument?  (Tr. 56:21-57:4.)

But [the uninsured] are in the market in the sense that they are creating a risk that the market must account for.  (Id. 70:14-16.)

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.  (Id. 104:13-22.)
I do not pretend to know how Justice Kennedy is going to vote in this case.  But the oral argument itself reveals why he may well have been just putting the Government’s argument in the best possible light, rather than adopting it himself.  Specifically, elsewhere, he and others strongly suggested that the “actuarial risk” concern is:  1) a legally inadequate limiting principle; 2) a factually inapposite justification; and 3) redressable through alternative constitutional means.
Legally Inadequate Limiting Principle:  Justice Kennedy’s “actuarial risk” questions are being read to suggest that the uninsured “affect” commerce in the sense that they externalize the risk of unaffordable illness on the public.  But, as Justices Kennedy and Roberts principally emphasized, there is no principled reason why that is the only economic effect flowing from the non-purchase of a product that Congress can seek to undo by compelling the product’s purchase.  (See, e.g., Tr. 16:18-17:7, 39:6-43:8.)  Nothing in the Commerce Clause or the Necessary and Proper Clause conceivably limit Congress to regulating non-purchase of a product if and only if that non-purchase externalizes risk, rather than having a different type of unwanted economic effect.  For example, Detroit’s economic woes are no less “proximately” caused by the fact that Americans don’t want to buy domestic cars.  Indeed, to the contrary, they are more “proximately” caused:  when an individual choose not to buy a domestic car, the “effect” on GM et al. is direct and immediate (and as Paul Clement argued, unemployed workers shift costs to the employed); whereas when an individual chooses not to buy insurance, the “effect” on health-insurers and healthcare-providers if that individual later incurs an unaffordable illness is contingent and remote.
Factually Inapposite Justification:  Moreover, the “internalize-actuarial-risk” defense of the mandate cannot be squared with the fact that the mandate forces individuals to purchase insurance that is neither actuarially priced (due to the community-rating requirement that bars consideration of actual health status) nor limited to unaffordable illness (due to minimum-essential-benefits requirements that drastically exceed catastrophic coverage).  Justices Roberts and Alito principally emphasized this mismatch in the Government’s theory, (see, e.g., Tr. 31:24-34:22), and Mike Carvin returned to the point in direct response to Justice Kennedy’s final question about the issue, (id. 104:24-106:8).  The mismatch demonstrates that the predominant purpose and effect of the mandate is instead to stimulate demand for its own sake — i.e. to force young, healthy individuals who will not incur unaffordable illnesses to subsidize the costs of old, sick individuals who will.  But that is precisely the rationale that even the Solicitor General disavowed (id. at 16:22-25.)
Alternative Constitutional Means:  Finally, as Justice Kennedy himself observed, Congress has myriad legitimate alternatives to address those who externalize risk.  Namely, it can incentivize them to internalize risk (by rewarding those who do so or by sanctioning those who fail to pay for costs they incur) or it can force them to internalize risk (through proper use of the tax power).  For that reason, as Justice Kennedy suggested, there is no reason to stretch the commerce power, (Tr. 25:3-10), and thereby “change[] the relationship of the Federal Government to the individual in a very fundamental way,” (id. 31:11-16.)
Again, you never know what any Justice will do, but sitting in the courtroom, I sensed that Justice Kennedy had an impassioned concern for how upholding the mandate would fundamentally change the relationship of the individual to the federal government.  These other questions were raised later and with much less intensity.   But I could be wrong about this.

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