Free Riding on Benevolence: Collective Action Federalism and the Minimum Coverage Provision

Abstract

Opponents of the minimum coverage provision in the Patient Protection and Affordable Care Act (ACA) argue that this “individual mandate” is beyond the scope of Congress’s commerce power because it regulates the “inactivity” of not purchasing health insurance. Defenders of the provision argue that it regulates the “activity” of participating in the interstate health care market, including by obtaining health care without paying for it. This Article argues that the distinction between inactivity and activity is irrelevant to the limits of the commerce power.

Drawing from the theory of collective action federalism that he recently articulated with Robert Cooter, the author argues that the Commerce Clause is best understood in light of the collective action problems that the nation faced under the Articles of Confederation, when Congress lacked the power to regulate interstate commerce. One way a collective action problem arises is when people benefit from collective action regardless of whether they contribute to it. To over-come failures to participate in collective action whose effects spill across state borders, the clauses of Article I, Section 8 authorize Congress to require various kinds of private action.

This authorization includes requiring financially able individuals to obtain health insurance or pay a fee instead of free riding on benevolence by shifting costs to others (cost shifting) or waiting to obtain insurance until they are already ill (adverse selection). To the extent such free riders are deemed inactive, their inactivity is a problem, not a reason why Congress is powerless to offer a particularly effective solution. Congress can offer such a solution when spillover effects impede the ability of the states to solve the cost shifting and adverse selection problems on their own. Theoretical reasoning and empirical evidence suggest that the states are not well situated to solve the two problems that the minimum coverage provision aims to address.

Keywords: commerce clause, collective action federalism, Patient Protection and Affordable Care Act