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Saturday, December 26, 2009

An Impossible Situation: Reid's Unhealthy Care

An Impossible Situation: Reid’s Unhealthy Care

Several leading legal scholars and professors of law have made the strong case that the US Senate’s version of “unhealthy care” legislation is not likely pass Constitutional challenges.     In essence, the legal argument is made that the proposed Health Care insurance mandates and excessive regulation coupled with “defacto price controls” on health insurance create a scheme in which the health insurance business is regulated like a public utility.    Given that perspective, in light of case law in the United States at the US Supreme Court level, it is likely that significant legal challenges will result based on the regulatory framework of Reid’s unhealthy care legislation. 

The combined impact of these interconnected provisions is clear: there is no feasible way that an insurance carrier can respond to the increased costs of servicing of its book of business either by declining coverage or by reducing services. With all escape hatches closed; the critical question is whether the health insurance issuer is in a position to raise rates in order to offset the risks in question. On this question, section 2794 introduces a complex system of de facto price controls that depends on the close cooperation of state and federal officials. The initial process that goes into effect in 2010 requires the Secretary and the states to develop a plan to look for “unreasonable increases” in charges for insurance coverage. At this point, all health-insurance issuers must submit to the state insurance commission authority “a justification for an unreasonable premium increase prior to the implementation of the increase.” (It is not stated as to how one justifies increases that are, by definition, unreasonable.) Thereafter, once the information has been submitted and evaluated, it appears that the state insurance commissioner shall make appropriate recommendations “to the State Exchange about whether particular health insurance issuers should be excluded from participation in the Exchange based on a pattern or practice of excessive or unjustified premium increases.” In effect, it appears that the State Exchanges can exclude health-insurance issuers from offering their plans through the Exchanges, at which point the subsidies to insurers will be lost.     Richard A. Epstein

Given the preceding argument by Mr. Epstein, he goes on to state why this conundrum for the health insurers combined with case law on the regulation of public utilities will set the stage for numerous legal challenges, of both the legislation and the administration by state and Federal agencies.     Simply, the complex scheme of “defacto price controls”, heavy regulation, government mandates and bureaucratic red tap found in the Reid bill that came out of the US Senate is likely not to pass the “reasonable person” or US Constitutional test.

There is, moreover, no quick fix that will eliminate the Reid Bill’s major constitutional defects. It would, of course, be a catastrophe if the Congress sought to put this program into place before its constitutionality was tested. Most ratemaking challenges are done on the strength of the record, and I see no reason why a court would let a health-insurance company be driven into bankruptcy before it could present its case that the mixture of regulations and subsidies makes it impossible to earn a reasonable return on its capital. At the very least, therefore, there are massive problems of delayed implementation that will plague any health- care legislation from the date of its passage. I should add that the many broad delegations to key administrative officials will themselves give rise to major delays and additional challenges on statutory or constitutional grounds.   Richard A. Epstein

Excerpt from Article: Impermissible Ratemaking in Health-Insurance Reform: Why the Reid Bill is Unconstitutional   By Richard A. Epstein  Manhattan Institute, NY

Richard A. Epstein is the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, the Peter and Kirstin Bedford Senior Fellow at the Hoover Institution, a visiting professor at the NYU Law School, and a visiting scholar at the Manhattan Institute.

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