Federalism and the End of Obamacare

by Nicholas Bagley — Wednesday, Feb. 15, 2017

That’s the title of my new essay, which the Yale Law Journal Forum has published in draft form. Here’s the abstract.

Federalism has become a watchword in the acrimonious debate over a possible replacement for the Affordable Care Act (ACA). Missing from that debate, however, is a theoretically grounded and empirically informed understanding of how best to allocate power between the federal government and the states. For health reform, the conventional arguments in favor of a national solution have little resonance: federal intervention will not avoid a race to the bottom, prevent externalities, or protect minority groups from state discrimination. Instead, federal action is necessary to overcome the states’ fiscal limitations: their inability to deficit-spend and the constraints that federal law places on their taxing authority. A more refined understanding of the functional justifications for federal action enables a crisp evaluation of the ACA—and of replacements that claim to return authority to the states.

The upshot of the piece is that there’s much to be said—more than the ACA’s supporters generally acknowledge—for returning power to the states. That’s so even with respect to some of the ACA’s most sacrosanct provisions:

[C]onsider the ban on medical underwriting. The ACA reflects the judgment that it is unfair to deny coverage to the sick or to ask them to pay more for their coverage. The ACA thus embraces policies—in particular, the much-maligned individual mandate—that its drafters thought necessary to cope with the risk that people will wait until they got sick to purchase coverage. For the ACA’s supporters, the individual mandate is a reasonable price to pay to prevent discrimination against the sick. But many people don’t see it the same way. Some reject the claim that the government should be in the business of guaranteeing coverage for everyone. Others don’t think that medical underwriting, however distasteful, warrants a heavy-handed purchase obligation. Still others doubt that the individual mandate is strictly necessary to prevent adverse selection, and would prefer less-intrusive alternatives. If those who disagree with the ACA’s approach command the levers of political power within a state, why shouldn’t those states be allowed to try something different?

The argument can be generalized to most of the ACA’s insurance reforms. And I can already hear the response: Because this “something different” will not work. The ACA’s opponents are completely unrealistic about the tough tradeoffs that health-care policymaking entails. They will take federal money and squander it, leaving millions of people without coverage.

That might be right; indeed, I suspect it is right. But that’s my judgment. Lots of smart people do not share that judgment. And if federalism means anything, it is that national judgment should not supersede state judgment, absent a good reason for federal intervention. Yes, federal money might be squandered in a state that adopts stupid insurance rules. People could go bankrupt and even die as a result of the lack of coverage. But that’s an issue between the state and its voters. If other states use the money more effectively, the state with the stupid rules will come under pressure to improve them. And what if it turns out that what seemed stupid is not so stupid after all?

Democracy rests on the conceit that we all have an equal voice in determining what the good is, which is why Michigan voters don’t get to tell Ohioans how to spend their tax dollars, even if Wolverines know in their hearts that they make better decisions than Buckeyes. And while the federal government can make decisions for Ohio, it should not do so just because it doubts the wisdom, intelligence, or values of Ohio residents. “The states have bad ideas” is a poor justification for federal law (unless, again, those bad ideas turn on views about the inferiority of minority groups). Federalism thrives when we recognize the limits of what we know, appreciate that good people can hold views that many others find repugnant, and acknowledge that our own misconceptions and prejudices can blind us. Sometimes federalism means letting the states wave their crazy flags.

I’d welcome any suggestions and criticisms. And a big thank you to the Yale Law Journal, which has moved with stunning speed to get the piece up.

@nicholas_bagley

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About Nicholas Bagley

Nicholas Bagley is a Professor of Law at the University of Michigan Law School.

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