Illustration by Ryan Cox

By Jonathan Cohn and David A. Strauss Thu May 03 23:00:36 GMT 2012

As they await the Supreme Court ruling on the Affordable Care Act, legal critics of the law say their case is about liberty. If the government can instruct people to obtain health insurance, they keep asking, whats to stop it from requiring them to buy broccoli?

But the real threat to liberty in this case isnt a hypothetical broccoli law. Its the problem that the mandate remedies — the failure of the health-insurance market — and the long-standing national crisis of rising health-care costs that Congress finally found a way to address.

Its not a coincidence that in every advanced country in the world, including the U.S., the government is heavily involved in the health-care market and has been for generations. Everybody needs medical attention, at some point, and virtually everybody needs health insurance to pay for it. Nobody can predict when he or she will need care and virtually nobody can pay for it out of pocket. Even the laws challengers acknowledge these facts.

But in the U.S., not everybody can actually get health insurance — partly because, as economists have long understood, the health-insurance market is almost uniquely prone to dysfunction.

Insurers need premiums from healthy people, so that, at any one time, they have money to pay the bills of the sick and injured. Private insurers can build these broad risk pools when they sell coverage through large employers, since such companies typically have big and diverse workforces. But when insurers sell health-care policies directly to individuals, they run into trouble: They disproportionately attract people who already have medical conditions.

During the 20th century, this problem of adverse selection pushed many insurers into financial distress.

To preserve themselves, carriers today charge higher premiums, reduce benefits or deny coverage altogether to applicants who have pre-existing medical conditions. Although this keeps insurers solvent, it excludes people who need insurance the most — in ways that limit their ability to participate fully as members of society and, for that matter, to engage in interstate commerce. Frequently these people cant switch jobs or start a business. In the worst cases, they cant pay their medical bills or obtain the care they need.

By establishing the mandate, which is really just a financial incentive for people to get insurance, the Affordable Care Act will build large, stable risk pools for health insurance. It will also enable the government to set rules about standard benefits and pricing that allow people buying insurance on their own to comparison-shop. In the long run, according to the Congressional Budget Office, it will help government control the cost of medical care, which increasingly strains public and private resources alike — and today accounts for one-sixth of the American economy.

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