Unconstitutional Medicare-For-All

Monday, November 11, 2019

Senator Elizabeth Warren’s Medicare-for-All (MfA) proposal, which calls for $20.5 trillion in new taxes on everyone but the middle class (ahem), has generated fierce political controversy that threatens to upend the Democratic presidential primary. Economic critiques of her MfA program on the left and the right are a dime a dozen. Yet surprisingly, there has been a stunning silence on the possible constitutional challenges that could be raised against the program. But because other variations of the MfA program may yet be introduced, including one by Senator Bernie Sanders, it is better to think through these issues in advance.

In general, there are two kinds of constitutional objections that that can be raised against any federal program—those based on claims that the program violates federalism, and those concerned with the protection of religious and economic liberties. Dealing with these various issues depends critically on one’s basic approach to constitutional interpretation—whether one adopts a New Deal jurisprudence or a classical liberal one. Under the earlier classical liberal view, all government action was viewed with suspicion. The dominant attitude sought to slow down adventurous legislation. Speaking generally, statutes that strengthened common law interest in property and contract were favored.

The New Deal revolution arose because the Supreme Court Justices of the time no longer showed the same respect to common law rights and duties. They invited comprehensive government intervention even into competitive markets for labor, agriculture, telecommunications—and, later on, health care. The progressives thought that private markets in these areas were riddled with market failures, which could be corrected only by expanding federal power and limiting the scope of private rights of property and contract.

They thus emphatically rejected the earlier classical liberal view that the federal government lacks an enumerated power to regulate health care. They championed a broad reading of the Commerce Clause that embraces virtually any productive activity, not just activities such as transportation and communication, across state lines. Similarly,  the independence of state governments from federal regulation was sharply limited by the view held by the New Deal Justices that states may be subject to general forms of economic regulation, such as the wage and hour standards imposed by the Fair Labor Standards Act, on the same terms as private parties. Meanwhile, claims for the protection of economic liberty and private property have been subject to little scrutiny.

Thus, it is tempting to argue that the MfA could be considered constitutional under the New Deal approach, even if it were doomed under the classical liberal conception of constitutional law. Nonetheless a closer examination shows, somewhat surprisingly, that the Warren plan is so radical that it might fail even under the current expansive view of federal regulatory power.

By far the most significant item in the Warren program is her proposal to abolish the private insurance industry, thereby shifting 98 percent of the premiums now paid to private insurers by both state and private employers to the federal government. Let’s start with the decision to strip states of the power to run their own insurance programs simply because private individuals will now have been forbidden to do so. This rule would not run afoul of the basic antidiscrimination norm that applies minimum wage and overtime provisions to the state in the same manner as to private employers. But here, the restriction cuts far deeper insofar as it forces states out of their customary modes of business and simultaneously transfers virtually all of their healthcare revenues to the federal government to be administered as it sees fit.

A massive forced wealth transfer from states to the federal government was never an issue even in the earlier New Deal commerce clause cases that expanded federal power over health care.  No previous program ever allowed the federal government to administer the entire program and to set benefits that wholly ignore the particular preferences of each employee, who usually are allowed to choose from a menu of options. If this is permissible, why not let the federal government take over entire state payrolls to be allocated as the feds see fit? We have already departed from the sensible notion of the founding period that the federal and state governments are coequal sovereigns, which at one time meant that neither could tax the activities of the other, but it is still quite likely that the current Supreme Court would reject any federal effort to usurp for itself the direct management and control of state employees.

The larger question, though, is whether the magnitude of this power grab would trigger a successful constitutional challenge to Warren’s program on the grounds that it involves a taking of private property without just compensation for both state and private actors. That claim could be brought on two levels. First, the MfA strips employers, employees, and insurance providers of their right to use their own resources to run their own businesses. That wholesale seizure counts as a taking for which just compensation is required. The current law draws a tricky and ultimately untenable distinction between the mere regulation of private business, which is unconstitutional only if the challenged regulation goes "too far,” and a physical occupation of private property, which is subject to a so-called “per se” rule. Under that rule, there is a strong presumption that the taking is presumptively unconstitutional if no compensation is provided for the loss unless the state can find a strong police power justification, such as preventing public nuisances or other forms of aggression.

In cases of comprehensive government action, this regulatory versus physical taking distinction breaks down. Under the modern rule, a regulation is commonly understood to cover cases in which the government restricts the way in which property may be used, which is what happens when a zoning ordinance limits building height or imposes density restrictions on property. Clearly, these rules need to be modified when money is taken for use towards a particular purpose. But of course, money is property and here it is stripped away from employers, employees, and insurers alike. The program does not look like a general tax which is designed to fund overall government operations, but instead looks like a seizure of funds for which none of the relevant parties receives sufficient compensation from the substitute that the MfA provides.

Starting with the employers, the money paid for health care coverage is a crucial component of compensation programs that they put into place to attract and retain employees. Yet we know that these employees will not be indifferent towards the receipt of their negotiated plan benefits and those which are supplied by the government. The employer plan is tailored specifically to employee preference while the government plan is subject to massive political diversions to other beneficiaries who have made little or no contributions to the overall MfA structure. Therefore, there is massive dilution of interests on both sides which suggests that this forced exaction takes both employer and employee property without just compensation.

The situation looks much the same from the perspective of an insurance company. If any company were devoted solely to the provision of health care, its entire net worth would be obliterated by Warren’s mandate. Yet, even under current law, even if the health insurance program is married with some other business, the revenues from that other business stream do not excuse the government from imposing confiscatory regulations on the health care business. Note that if these seizures are regarded as takings and not taxes, then the case against their constitutionality is clear. But even if they are treated as taxes, the unprecedented 98 percent rate looks confiscatory unless the term “too far” is drained of any substantive content.

Moreover, in my view, these limits on the power of taxation are clearly crossed by Warren’s proposal to raise $3.0 trillion by imposing an annual wealth tax of 6 percent on persons whose net worth exceeds $1.0 billion. In its earlier incarnation, Warren’s wealth tax envisioned a 3 percent tax on these individuals. The purported constitutional justifications for the tax do not conceive of any upper bound on the level of the tax imposed and therefore would not prohibit a 100 percent tax for wealth above a given level—after all, it is very difficult to draw a line in the sand without some version of the “too far” test, which is nowhere to be found in these “justifications.”

The traditional protection against the potential abuses of a wealth tax was to insist that any imposed tax must either be in exchange for current services, as with real estate taxes, or on some transaction, whether it be the earning of wealth during life or its transfer by gift or will—which for a given amount of wealth could be taxed only once, in stark contrast to an annual wealth tax. Stripped of these traditional constraints, the power to tax truly becomes, as Chief Justice Marshall feared, the power to destroy.

In the end, it is hard to conceive of any limitation on the federal government’s power to control the lives of its citizens if these exaction schemes are sustained. Yet, unless some portion of the classical liberal constitutional restrictions on taxation are retained, or, if need be, revived, Warren’s MfA sets the United States up for a long economic winter.


GET MORE COMMENTARY FROM RICHARD EPSTEIN.

This expert commentary from Richard Epstein dissects the shallow theology behind the new strain of socialism that makes the unfounded claim that capitalism and private markets make us “unfree.” With today’s “New Socialists” calling for universal healthcare, price controls, free college tuition, and a basic universal income, this is an urgent read for any American who cares about preserving liberty for the next generation.

Simply complete the form below and we'll send you The Intellectual Poverty of the New Socialists now.