Crony capitalism at the heart of the AHCA

This commentary originally appeared in the Washington Examiner on April 10, 2017.

While Congress is on recess for the next two weeks, they'll have an opportunity to consider a little-discussed constitutional concern raised by the House Republican healthcare bill, namely, whether the AHCA replacement for the individual mandate is unconstitutional.

When the ACA passed in 2010, it was seen by many as a landmark overreach by the federal government. The primary cause of this concern was the ACA's "individual mandate," which required individuals to either purchase an approved health insurance plan, or pay a 2.5 percent tax penalty. Opponents of the mandate argued that punishing people for not buying insurance exceeded Congress' authority under the Commerce Clause. Five justices of the Supreme Court ultimately agreed with that observation. Nonetheless, the Court upheld the individual mandate as a constitutional exercise of Congress' "taxing power." According to the Court, the penalty for violating the individual mandate could be characterized as a tax, rather than a punishment, because it was collected by the IRS "in the same manner as a tax" and deposited in the treasury.

The recently introduced AHCA creates its own individual mandate, but the AHCA's mandate is more difficult to characterize as a tax and therefore, less likely to be saved by the same judicial reasoning. Under the AHCA, individuals who fail to maintain continuous insurance coverage are required by law to pay a penalty that is equivalent to 30 percent of the cost of their monthly healthcare premium when they re-enter the market. Like the individual mandate the AHCA's penalty is mandatory and attaches to the decision not to purchase insurance. And like the individual mandate, the AHCA's premium penalty is designed to force healthy people into the insurance market by punishing those who fail to buy insurance. The primary difference between the AHCA and the individual mandate, is that the AHCA requires that this penalty be paid directly to private insurance companies as opposed to the IRS.

Characterizing such a direct transfer from citizens to private businesses as a tax would be difficult and would raise independent constitutional concerns. The Supreme Court has defined a tax as "a public imposition, levied by authority of the government for the purpose of carrying on the government in all its machinery and operations." The AHCA premium penalty, by contrast, is direct transfer of private money, collected by private insurance companies, to insure that those companies remain profitable.

Even if this transfer could be characterized as a tax, it would raise its own constitutional concerns. More than a century ago the United States Supreme Court held in Citizens' Sav. & Loan Ass'n v. City of Topeka (Topeka) that taxes may not constitutionally be used to directly fund private enterprise. As the court explained, a law that allows government to "lay with one hand the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is none the less a robbery because it is done under the forms of law and is called taxation."

In the years since the Court's decision in Topeka, America has, perhaps, become more tolerant of crony-capitalism. Today the federal government subsidizes everything from solar power to New Balance running shoes. But the basis of the Court's decision in that case remains unchallenged—laws that fleece the citizenry to directly line the pockets of government-preferred businesses are both morally and constitutionally suspect.

In this sense, the AHCA is more problematic than the individual mandate. Not only does it punish individuals for buying a product that they do not want, it unabashedly uses this authority to line the pockets of a private industry (insurance) that the government prefers. Unlike modern subsidies, the AHCA doesn't even feign neutrality by using the congressional appropriation process as a middleman. Funds go directly from the people to a corporate bank account.

The individual mandate survived constitutional challenge solely because it was a tax. The AHCA penalty doesn't have that option. Hopefully, the House's decision to delay the vote on the AHCA will give the GOP an opportunity to reconsider its mistake.