Is the Senate Health Bill Unconstitutional?

This is Richard A. Epstein, writing in The Wall Street Journal:

The constitutional art of rate regulation sought to keep monopolists at competitive rates of return. To control against the risk of confiscatory rates, the Supreme Court also required the state regulator to allow each firm to obtain a market rate of return on its invested capital, taking into account the inherent riskiness of the venture. The orthodox legal approach was summed up in Justice William Rehnquist’s unanimous 1989 decision in Duquesne Light v. Barasch [which] allowed the state regulators a wide choice of methods so long as the “bottom line” secured the appropriate rate of return. There’s no need to discuss the fine points here, because not one syllable in the Reid bill is dedicated to securing that constitutionally guaranteed minimum rate of return.

The WSJ article is based on a longer study released by the Manhattan Institute.

Comments (6)

Trackback URL | Comments RSS Feed

  1. Larry C. says:

    Interesting legal argument. However, the price of the shares of the large insurance companies went up after the health bill passed the Senate. So for the near term, the market thinks reform is going to be good for the insurers.

  2. Devon Herrick says:

    The problem when regulators attempt to set fees (even if it includes a fair rate of return) is the lack of competition that results. Even a poorly-though out investment gets the same return as well-thought out investments. The model for this is Medicare, whose providers already receive few rewards for high quality and few penalties for low-quality care. Now it appears Congress wants to saddle private insurers with similar disincentives to improving quality and efficiency.

  3. Stephen C. says:

    I think the answer to Larry is: insurance companies are going to become de facto regulated utilities. In the short run, they may profit from the arrangement. But in the long run, they have no minimum guranteed rate of return.

  4. John R. Graham says:

    I must say that I was more than a little disturbed by Prof. Epstein’s thesis that there is a “constitutionally guaranteed minimum rate of return.” His Manhattan Institute monograph (p. 20) cites two cases where regulated enterprises relied upon the Takings and Due Process clauses to increase their rate of return. Prof. Epstein appears to conclude that if the “reform” legislation guaranteed a rate of return, it would be acceptable. Yikes!

    I have to say that I found the case for unconstitutionality put forward by Barnett, Stewart, & Gaziano much more convincing.

  5. Tom H. says:

    Where this seems to be going is toward the question of how much insurers earn. Is Eptstein saying that the law is unscontitutional because it does not guarantee the insurer a minimum rate of return (regardless of the rate the insurer actually earns)?

    Does unconstitutionality rest on a showing that the insurer has been harmed? Or can unconstitutionality be established regardless of actual harm?

  6. Neil H. says:

    Last time I read the Constitution, I didn’t see the words “health care.”