Did Congress Employ the Commerce Power to Impose Individual Mandates in the 1790s? Of Course Not.

Recently some, including Eliot Spitzer (see here) and Einer Elhauge before him (see here) have invoked early maritime legislation in support of their argument that the Affordable Care Act's coercive individual mandate is consistent with the original meaning of the Commerce Clause, in part because so many of the Founders were members of Congress during the 1790s.  Both point to two such statutes:  First, a 1798 "Act for the Relief of Sick and Disabled Seamen," which required ship owners to collect taxes to support health care for seamen and second, a 1790 Act purportedly requiring ship owners to purchase health insurance for seamen manning their vessels.  Spitzer refers to Professor Elhauge's essay  as a "brilliant article" involving "spectacular historical reporting."  Professor Elhauge's tone, it should be noted, is far more nuanced and modest.

Invocation of the 1798 Act is not new in this context.  As early as January, 2011, Ezra Klein of the Washington Post invoked this statute in his blog, claiming that the Act constituted precedent for the Affordable Care Act's coercive requirement that Americans who can afford to do so must purchase health insurance policies whose terms are dictated by the National Government.  In so doing, Klein claimed that the 1798 Act "was, in essence, a regulation against a form of inactivity: You were not allowed to not do something, in this case, pay for sailor's health insurance."

Others issued effective rebuttals to this claim at the time.  (See this excellent January 2011 essay in Forbes by Avik Roy.) 

Neither statute provides precedent for the Affordable Care Act's coercive individual mandate.

The 1798 statute, for instance, was a quintessential regulation of interstate commerce.  By its terms, the statute only applied to vessels whose owners affirmatively sought licenses to engage the so-called "coasting trade," that is, the carriage of goods within the waters of the United States from one port to another.  According to Joseph Story, Congress's power over the coasting trade derived from the Commerce Clause, and "extends to the regulation of navigation, and to the coasting trade and fisheries, within, as well as without any state, wherever it is connected with the commerce or intercourse with any other state, or with foreign nations."  See Joseph Story, II Commentaries on the Constitution of the United States, Ch. 15, Section 1071 (1833).  Indeed, as Story explained, this power "extend[ed] to the regulation and government of seamen on board of American ships."  Id.

Indeed, it may be that the 1798 Act involved an exercise of the taxing and spending power.  As Matthew Franck has explained, the statute imposed a "payroll tax collected by shipowners from seamen’s wages for purposes of a federal spending program on caring for sick sailors."  Characterized in this way, the statute was not a regulation of commerce at all, but instead an exercise of the power to "lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States."   Of course, under a Madisonian view of the Commerce Power, such spending could only further the general welfare if it carried into execution  one of Congress's enumerated powers, such as the Commerce Power.

The 1790 Act provides no more support for the Spitzer/Elhauge claim.

Here is the relevant text:

"[E]very ship or vessel belonging to a citizen or citizens of the United States, of the burthen of one hundred and fifty tons or upwards, navigated by ten or more persons in the whole, and bound on a voyage without the limits of the United States, shall be provided with a chest of medicines, put up by some apothecary of known reputation, and accompanied by directions for administering the same; and the said medicines shall be examined by the same or some other apothecary, once at least in every year, and supplied with fresh medicines in the place of such as shall have been used or spoiled; and in default of having such medicine chest so provided, and kept fit for use,Penalty on the master for default. the master or commander of such ship or vessel shall provide and pay for all such advice, medicine, or attendance of physicians, as any of the crew shall stand in need of in case of sickness, at every port or place where the ship or vessel may touch or trade at during the voyage, without any deduction from the wages of such sick seaman or marine."

As Matthew Franck (again) has explained, the Act did not require vessel owners to provide health care as such.  Instead, owners only had to provide such care if they "default[ed]" on the statute's requirement to provide "a chest of medicines, put up by some apothecary of known reputation, and accompanied by directions for administering the same . . ."   Moreover, the statute did not apply to any and all vessels but instead applied only to those vessels "navigated by ten or more persons in the whole, and bound on a voyage without the limits of the United States."   Thus, the statute did not even apply to the so-called "coasting trade" governed by the 1798 Act.

In sum neither Act provides precedent for the Affordable Care Act's coercive individual mandate.  Instead, both regulate --- that is, prescribe a rule governing --- Commerce Among the Several States and with Foreign Nations.  Indeed, in  Gibbons v. Ogden, 22 U.S. 1, 197 (1824), a case often invoked by advocates of broad national power, Chief Justice John Marshall defined the power to regulate interstate commerce as the power "to prescribe the rule by which commerce is to be governed."   The two early statutes invoked by Spitizer and Elhuage do exactly that --- they impose a rule on individuals volutarily conducting interstate commerce.  Thus, the requirements of these statutes are indistinguishable from, say, a requirement that interstate railroads install particular safety equipment, allow their employees to unionize, or travel at certain speeds.  Examples could be multiplied.  Like so many other laws, all such requirements "mandate" that firms voluntarily operating in interstate commerce perform certain acts they would not otherwise perform. 

By contrast, of course, the Affordable Care Act's individual mandate applies to individuals as such, regardless whether such individuals are engaged in interstate commerce.  That is to say, instead of prescribing a rule by which parties conduct interstate commerce that already exists, such legislation conscripts individuals into engaging in interstate commerce in the first place.  The maritime Acts invoked by Spitzer, Elhauge and others no more support such an unprecedented expansion of Federal power than they would support, for instance, a ban on the possession of guns near a school.  See United States v. Lopez, 514 U.S. 549 (1995) (invalidating such a ban)  or the regulation of purely intrastate commerce.  See A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935) (invalidating such regulation). 

Update:  After publishing this post I located a response by Professor Elhauge to a similar but briefer argument made by Randy Barnett.  The core of Elhauge's response is worth quoting in full, though I have highlighted key portions.

Although Barnett acknowledges that the early medical insurance mandates were exercises of Congress’ commerce clause power, he distinguishes them on the ground that they were imposed on actors who were in commerce, namely on shipowners and (in a third example he omits) seamen. His distinction thus means that he admits that these precedents show that if one is engaged in commerce in market A – here the shipping market or the seamen labor market – then Congress has the power to impose a mandate to purchase in market B – here the medical insurance market – even though markets A and B are totally unrelated. This concession conflicts with the argument of the challengers, which claimed that widespread activity in the health care market did not permit a purchase mandate even in the highly related health insurance market. Indeed, this concession seems to make the whole action/inaction distinction collapse because the fact that no relation between the markets is required means that commercial activity in any market – say, the market for employment or food or housing – would permit the Obamacare mandate. Because the Obamacare mandate applies only to those who have income that subjects them to income tax, it is necessarily limited to people who are active in some commercial market and thus his test would be satisfied.

Basically, then, Elhauge argues that the coercive individual mandate is constitutional because it only applies to individuals who earn enough income to subject themselves to the requirement.  As such they are "in commerce" with the result that Congress may require them to purchase products in an unrelated market, just as Congress required the owners of vessels to, for instance, purchase medicine.

Elhauge's argument ellides two distinct questions: (1) whether individuals subject to the mandate are engaged in commerce and (2) whether the mandate constitutes a regulation of that commerce.  Elhauge is certainly correct that individuals who work for employers and earn income are "in commerce" (at least according to the Supreme Court's modern case law.)   In this sense they are analogous to the vessels travelling in interstate commerce regulated by the statutes discussed above.  However, while the individuals are analogous to the vessels, the mandate is emphatically NOT analogous to the regulations of those vessels that Congress promulgated in the 1790s.   Simply put, given the definition of "regulate" announced in Gibbons and discussed above, the coercive individual mandate is not a "regulation" of employment or other income generating activity.  That is to say, the mandate does NOT "prescribe the rule by which commerce [earning income] is to be governed."  Instead, the mandate has nothing to do with that income-generating activity.

Indeed, if Professor Elhauge is correct, then choosing to enter the workforce would thereby subject an individual to any regulation of Congress's choosing.  Congress could, for instance, require all individuals to do a certain number of push ups each day, or ban exercise altogether.  It could ban poker or require it.  It could require all individuals to eat rice pudding or broccoli.  Nothing in the American Constitution grants Congress this sort of power.

On the Distinction Between Regulation and Enforcement: Why the Antitrust Division is Apparently Exceeding its Authority

NCAA Commissioner-in-Chief?

NCAA Vice-Commissioner in Chief?

When running for President, Barak Obama (pictured above receiving a gift from 2010 BCS champion Alabama) made no secret of his desire to replace the current BCS Bowl system with an eight team national playoff to determine college football's champion. Moreover, nearly two years ago, Seantor Orrin Hatch, pictured below President Obama, called for an antitrust investigation of the BCS system. Last week the Antitrust Division of the Department of Justice finally "got the hint," and sent a letter to the NCAA seeking an explanation for the association's failure to adopt a playoff system similar to that employed in some other college sports, including, e.g., college basketball.

The letter does not formally or informally charge the NCAA with any violations of the antitrust laws or any other federal law. Nor does it articulate or even adumbrate any argument that the BCS system, which is a particular form of playoff system, and/or the means used to enforce it violate the antitrust laws. Instead, the letter begins by noting that the Attorney General of Utah, hardly a disinterested party (the state's two best college football teams are in conferences whose winners do not automatically qualify for a BCS bowl), has announced an intent to challenge the BCS under the antitrust laws. The letter also notes that 21 economists --- a miniscule fraction of the nation's economists --- have filed a memorandum with the Division calling for an antitrust investigation of the BCS system. Finally, the letter notes that "other prominent individuals have publicly urged the Antitrust Division to take action against the BCS."

The DOJ's letter is perplexing to say the least. The Antitrust Division is charged with enforcing the nation's antitrust laws, period. That is to say, the Division is charged with determining whether a given restraint, by reducing pre-existing competition, reduces consumer welfare. However, the letter reads more like a request from a congressional committee considering regulatory legislation or an adminstrative agency charged with promulgating New Deal style "public interest" regulation. Thus, the letter asks open-ended questions that are untethered to any recognizable standard of antitrust liability. For instance, the letter asks why "the Football Bowl Subdivision does not have a playoff" and "[w]hat steps does the NCAA plan to take to establish a playoff at this time?" Finally, and most oddly, the letter asks "[h]ave you determined that there are aspects of the BCS system that do not serve the interests of fans, colleges, universities and players?" To what extent would an alternate system better serve those interests?"

These questions suggest that the Antitrust Division is conducting an inquiry that exceeds its jurisdiction, that is, that the Division is seeking to leverage its authority to enforce the antitrust laws to determine whether, say, an 8 team playoff system is superior to the current BCS system and then to foist upon the NCAA the results of the Division's analysis. Would it be sheer coincidence if Division determines that the best system is the one preferred by the President of the United States, who can hire and fire the head of the Antitrust Division at will?

But don't the antitrust laws require the NCAA to adopt the optimal system of determining a national champion? After all, many have argued that antirust should ban those restraints that reduce economic welfare. Certainly not. The Sherman Act forbids contracts, combinations and conspiracies in restraint of trade or commerce among the several states. A century ago, in Standard Oil v. United States (discussed here in a subsequent post), the Supreme Court held that only contracts that produce "the consequences of monopoly" restrain trade within the meaning of the statute. There are, the Court said, three such consequences: higher prices, reduced output and reduced quality. (A modern economist would recognize these consequences as different manifestations of an exercise of market power.) A restraint that produces none of these consequences cannot violate the Sherman Act, regardless of its other effects and regardless of whether a different restraint would produce even more social benefits. (For a summary of Standard Oil's Rule of Reason, see pp. 83-92 of the article found here.) The Supreme Court has repeatedly reiterated that Standard Oil properly states the law under Section 1 of the Sherman Act. See e.g. National Society of Professional Engineers v. United States, 435 U.S. 679 (1978). Indeed, and ironically, the Antitrust Division's own guidelines for examining "collaboration among competitors" provide that "Rule of reason analysis focuses on the state of competition with, as compared to without, the relevant agreement." (See Competitor Collaboration Guidelines, Section 1.2; id. at Section 3.1) There is no suggestion that such analysis entails comparison of the challenged restraint to a restraint that has never existed in the hope that the latter restraint would better serve the interests of society and consumers.

It's difficult if not impossible to square the Antitrust Division's letter with any effort to enforce Section 1's Rule of Reason or for that matter its own enforcement guidelines. Under Standard Oil, the question for the Division is straight-forward, if difficult to answer. Does the BCS system adopted in 1998 --- the first effort to create a true national championship game --- reduce output, raise prices or reduce quality compared to the system that preceded it, that is, the status quo ante? That status quo ante, in turn, involved no playoff whatsover, but instead an uncoordinated "system" of numerous bowls, each promoted separately. The relevant question is NOT whether the Antitrust Division, 21 economists, or a court can imagine a different completely hypothetical system, e.g., an 8 team playoff, that would serve consumers and various other groups even better than the current system. Indeed, if Rule of Reason analysis did turn on this sort of hypothetical inquiry, the Sherman Act would rapidly become a license for a form of central planning. Any number of firms, after all, enter long term ventures or contracts that restrain parties to them and thus "reduce competition." However, most such agreements properly survive Rule of Reason scrutiny because they produce no harm in the first place or produce only benefits compared to the status quo ante. Thus, an antitrust standard banning harmless or beneficial restraints simply because a different practice would be even more beneficial for all concerned would empower courts and the antitrust enforcement agencies to examine any agreement to determine whether some other agreement would produce even more benefits. For instance, such an approach would authorize courts and the enforcement agencies to examine any merger to determine whether a different transaction produced even more benefits. Such an approach would be unprecedented and radically change the nature of antitrust regulation and contravene Standard Oil's fundamental premise that Section 1 should leave market actors free to exercise their contractual liberty as they see fit absent proof that the restraint in question produces antitrust harm compared to the status quo ante. The parties to various restraints, disciplined as they are by a free market, know far better than the enforcement agencies whether there might be some other arrangement that serves the interests of themselves and thus society even better.

Antitrust officianados might ask "but what about the less restrictive alternative test; don't courts conducting Rule of Reason analysis ask whether a challenged restraint is the least restrictive means of achieving the restraint's purported objective?" Yes, but only in narrow circumstances. (See pp. 110-113 of this article for an explanation of the role of less restrictive alternatives in Rule of Reason analysis.) That is to say, courts only ask whether there is a less restrictive means of achieving a restraint's objective if a plaintiff first shows that the challenged restraint produces antitrust harm compared to the status quo ante. Absent such a showing, the presence or not of such an alternative is simply irrelevant under current law, including the Division's own enforcement guidelines quoted above. Or, as Judge Frank Easterbrook put it in Chicago Professional Sports Ltd. Partnership v. NBA, 95 F.3d 593 (7th Cir. 1996) ("The Antitrust Laws do not deputize district judges as one man regulatory agencies. The core question in antitrust is output. Unless a contract reduces output in some market, there is no antitrust problem."). Ironically, the last question in the Division's letter quoted above, which asks whether there is another system that would improve everyone's welfare, seems to amount to an implicit concession that current system does not produce antitrust harm in the form of an exercise of market power that reduces output. For, if it did, then it's hard to imagine how a more competitive alternative would improve the welfare of consumers AND producers, the latter of whom benefit from reduced output flowing from exercises of market power.

None of this is the say that the BCS system would, in fact, survive scrutiny under an antitrust test that properly implements Standard Oil's Rule of Reason. The 21 economists mentioned above have argued that the BCS system entails a cartel between four bowls --- Fiesta, Orange, Sugar and Rose --- that were previously independent and unilaterally decided which teams to invite. The BCS system, these economists argue, disadvantages those schools from non-BCS conferences, that is, conferences whose winners do not automatically qualify for a BCS bowl and thus "injures schools in major college football's five other conferences . . . and also harm consumers by restraining output, fixing prices and reducing quality." The result, it is said, "is a marked change from the pre-BCS era, when non-traditional teams frequently competed for college football's national championship" (at least as measured by polls of sportswriters and coaches). It should be noted that, if these economists are correct, the appropriate remedy is emphatically NOT to impose an 8 team playoff, but instead to return to the status quo ante, where each bowl decided whom to invite and where to televise its product independent of the others.

There are, of course, significant counter-arguments to the claim that the BCS system is an unreasonable restraint of trade. For instance, the mere fact that the BCS entails horizontal cooperation between potential rivals does not transform it into a naked and presumptively illegal cartel. As the Supreme Court recognized in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1986), college football necessarily requires some horizontal cooperation, including cooperation about the size of salaries paid athletes, that would otherwise be unlawful. Moreover, each college football conference is itself a "cartel" that, for instance, determines the number of games played by its member teams ("output") and divides revenue among various schools, sometimes allocating significant revenue to schools that had losing records during the season in question. Nor is it always apparent what measure of price or output the 21 economists are referring to; there were 35 bowl games at the end of the 2010-2011 season. Are the economists asserting that there would have been even more such games absent the BCS? Perhaps more importantly, are they including "quality" within their measure of output? (All sports leagues limit the "output" of games; presumably such limits survive scrutiny because they enhance the quality of the games actually played and thus maximize "output" properly understood.) Without such an output reduction, how could the BCS increase prices? What prices would have fallen without the BCS? Prices for tickets? Prices that networks charge advertisers? Prices that Bowls charge networks for the rights to televise various bowls? Finally, the 21 economists complain about facets of the BCS, e.g., its revenue sharing arrangements, that seem unrelated to any appropriate antitrust concern. Just as antitrust law is unconcerned with the choice between the BCS system and an 8 team playoff, it is also agnostic between different schemes of allocating revenue, unless a challenged scheme results in a reduction in output and resulting increase in price.

But, at least the 21 economists seem to be asking the right question, unlike the Department of Justice.