Probably the most prominent version of single-payor healthcare is M4A. As proposed in Congressional bills S.11294 and H.R.1384,5 and as advocated by Senators Bernie Sanders and Elizabeth Warren during their 2020 presidential campaigns6 and beyond,7 M4A would cover every U.S. resident with a comprehensive array of services. In the process, this plan would eliminate private insurance and employer-sponsored health coverage entirely except for services not covered by the plan – e.g., cosmetic surgery, adult orthodontics, over-the-counter medications, non-covered prescription drugs, and non-covered physical therapy.8 Some other SPH versions envision no room for private insurance whatsoever.9 In 2019 the American College of Physicians endorsed single-payor or, alternatively, a public option, as a replacement for federal healthcare benefit programs.10 In addition to physician groups,11 various scholars endorse SPH, whether M4A or another format.12 Some, for instance, propose Medicare Advantage for All,13 in which individuals would choose from competing managed care organizations, funded by government but managed by private sector entities. At least one SPH version would encompass undocumented immigrants as well as all legal residents.14
Predictably, benefit/cost analyses vary widely. Benefits are said to include universalizing access to care, thereby improving population health and outcomes of care, reducing waste and inefficiency, and ameliorating provider burnout.15 Contrary arguments suggest that M4A would decrease the overall quality of care.16
Cost estimates depend on myriad policy choices, including the scope of covered benefits, beneficiary cost sharing (if any), formulae and amounts for paying providers, and formats for negotiating drug costs and other prices.17 Specifically in M4A, Medicare's relative financial fragility presents a cautionary note.18 Another factor explaining the wide disparities among cost estimates is that analysts have used different assumptions when trying to predict the behavioral impacts of single-payor insurance on providers, patients, and others – that is, how families, doctors, and hospitals will interact differently with the healthcare system once M4A is in place, compared to the status quo."19
Thus, on one hand, increasing substantially the number of people covered by government insurance can be expected to raise the government's healthcare expenditures. Potential offsets could include redirecting states' Medicaid contributions into the federal SPH plan20 and requiring employers to direct some or all of their savings on employees' healthcare into the federal plan.21 At the same time, various factors are projected to achieve savings, including reduced administrative costs;22 reduced fees paid to providers such as hospitals and physicians;23 increased income tax revenues where employees see higher wages from employers no longer paying for healthcare;24 utilizing monopsony buying power to reduce a wide array of costs;25 and reduced out-of-pocket spending for individual consumers.26
Concededly, the calculus of benefits, cost savings, and economic offsets will vary not just according to policy assumptions as noted above, but also via the ways in which providers, patients, and employers actually react to various changes – e.g., whether providers will respond to lower fees by providing more services.27 Employees losing work-based insurance might need to trust that their employers would translate healthcare savings into higher wages, and Americans would have to “trust a federal government that stumbled badly in rolling out [Patient Protection and Affordable Care Act] coverage that directly covers less than [at that time] 4% of the U.S. population to successfully engineer a transition for more than 300 million people to a wholly government-run system.”28
An Enormous, Overlooked – and Arguably Prohibitive – Reality
Crucially, these cost/benefit analyses recognize only minimally the non-healthcare costs of transitioning from a system heavily funded and managed by private payors to a wholly government-funded system. At most, we see brief recognition that many people employed by the health insurance industry would lose their jobs;29 that the change would "impose painful sacrifices on private insurers;"30 and that "[e]liminating private health insurance would effectively eliminate a large sector of the US economy" (offered only as a one-sentence acknowledgment with no further discussion).31
This article exposes an enormous, as yet essentially unrecognized – and arguably prohibitive – cost of shifting from our current healthcare system to a single-payor system that nearly or completely eliminates private insurers. We argue that a government-mandated evisceration of publicly traded insurance companies amounts to a Taking under the Fifth Amendment's Takings Clause: " … nor shall private property be taken for public use, without just compensation."32 Just compensation, based on the fair market value (FMV) to compensate stock owners and bondholders of publicly traded healthcare companies could, as we shall see, amount to five percent or more of the gross domestic product (GDP).
Accordingly, Part II of this article briefly reviews the market's healthcare sector through the lens of one such private insurer: Publicly Traded Healthcare Insurer (stock symbol "PTHI") is a hypothetical company based on actual companies’ public reports.33 Given PTHI's similarity to real healthcare insurers, an examination of its various service lines will show how SPH would essentially decimate the great majority of stock and bond holders' investments.
Part III explores Takings jurisprudence, including its distinction between per se Takings and regulatory Takings. The former are categorical Takings directly requiring compensation. The latter, in contrast, are intensely fact-based judgments requiring us to consider the character of the government action, its economic impact, and the reasonableness of parties' investment-backed expectations. In either case, a finding that a Taking has occurred then requires just compensation, ordinarily to be based on FMV.
Part IV then applies Takings jurisprudence to the instant inquiry, arguing that a government-created evisceration of private insurers could be either a per se Taking or a regulatory Taking, mainly depending on how much of any particular company survives the government takeover. In either case, once a Taking is established, then SPH, whether M4A or another plan, could not legally be accomplished without paying just compensation to all of the stock owners and bondholders of corporations such as PTHI. That compensation, in turn, will largely be based on bondholders' contracts and, for stocks, a fairly discernible FMV in the equities market, albeit with some important caveats. Thus, if Smith owns PTHI bonds with a principal of $100,000 at four percent interest, then the federal government will owe Smith whatever portion of $100,000, plus interest, has been erased with the adoption of SPH. If Jones owns $100,000 of PTHI stock, and that stock's value plummets to $15,000 with the adoption of SPH, then the government arguably must pay Jones around $85,000. As Part IV acknowledges, calculating just compensation can be complex, particularly for stocks.
Part V concludes that, because of the compensation required to address the Takings, deleting private sector insurance to establish SPH will almost certainly be prohibitively costly: You can't get there from here.
Healthcare and Private Insurers as a Market Sector
According to the Centers for Medicare & Medicaid Services (CMS), national health expenditures (NHE) in 2020 accounted for nearly 20 percent of the U.S. GDP.34 During that year, private health insurance spending constituted 28 percent of NHE. Thus, private health insurance accounted for around 5.6 percent of the GDP.35
Equally important, a large portion of these private health insurers are publicly traded, for-profit entities. They are owned by shareholders and owe debts to bondholders. Privately owned, publicly traded healthcare insurers provide a variety of services. They bear risk to directly insure millions of people, whether for individuals and families, or as plans purchased by employers. Additionally, U.S. private employers large enough to self-insure "primarily rely on large health insurance companies to administer health care benefits for an estimated 160 million people," managing spending, making payments for clinicians' bills, negotiating prices, and the like.36
We turn to our hypothetical but factually representative company, PTHI.37 Among the largest publicly-traded healthcare insurers, PTHI processed upwards of $1 trillion last year in gross billed charges, and one quarter of one trillion dollars in aggregate healthcare spending. PTHI has two complementary business platforms, "Insure" and "TechHealth."
Insure has three major lines of business. First, collecting monthly premiums, Insure assumes financial risk to provide health insurance to individual consumers, small businesses, mid-sized employers, and several large national employers, altogether covering over 25 million people. Globally, Insure covers another eight million people around the world, likewise collecting monthly premiums and assuming risk. Insure also provides "Medi-gap" insurance for senior citizens to cover expenses exceeding Medicare coverage. Insure additionally has health maintenance organizations (HMOs) in which the company directly provides healthcare services for a monthly fee. These HMOs are available both for employer-purchasers and on the individual health insurance market.
Second, for large, self-funded insurers and also for several government programs such as Medicare regions and various states' Medicaid, Insure provides third-party administrator (TPA) services in which the company receives a fee to process claims and pay providers according to each program's parameters, while not itself assuming risk.
Third, Insure offers pharmacy benefits management (PBM) services to process claims for prescription medications. Large, self-funded employers and a variety of government-sponsored insurance programs purchase these PBM services.
The other, financially smaller platform is TechHealth, which focuses on information and technology-assisted services to modernize healthcare systems and enhance population health. Serving nearly 100 million people, TechHealth provides a number of services for a range of government, employer, and individual health plans: managing health and wellness programs; navigation assistance in behavioral healthcare; navigation and other assistance for the care of complex medical conditions; and providing and servicing platforms for telehealth and remote patient monitoring. TechHealth also operates a bank for holding and processing flexible savings accounts (FSAs), health savings accounts (HSAs), health reimbursement accounts (HRAs), and other healthcare-related financial services; provides artificial intelligence assistance for monitoring and improving healthcare quality; and offers a variety of other services.
If SPH is enacted, predictions about how many and which of these services it would eliminate will depend on the exact contours of the legislation and its ensuing regulations. However, some general parameters can be known.
Many services would be immediately extinguished, including all risk-assuming insurance and HMO products, and all TPA, PBM, and related services for employers. Given that SPH proposals universally feature minimal or zero patient cost-sharing, financial services for FSAs, HSAs, and HRAs would also likely disappear. Collectively these comprise the great majority of PTHI's financial value. That said, products offered in other countries – a small component of PTHI's value – would likely remain intact unless the organization simply collapses from the loss of so many of its other business lines.
Survival of other services will depend on how the SPH program is configured. If the government opts to contract with private companies for TPA services, as it currently does for much of Medicare, then PTHI and similar actual companies might preserve their TPA business. Even so, any particular company could lose out to some other company, thereby losing all of its current TPA business. On the other hand, if the SPH plan brings that function entirely in-house, then all of the private companies' TPA business will be entirely eliminated. The same can be said for other services, such as PBMs, telehealth platforms, wellness programs, and the like.
It is suggested that, under some SPH plans such as M4A, private insurers could continue to insure services not covered by the government, such as cosmetic surgery, adult orthodontics, over-the-counter medications, non-covered prescription drugs, and non-covered physical therapy.38 However, although there may be some room for insuring against such things as the complications of cosmetic surgery, the obvious moral hazard of insuring directly for, e.g., cosmetic surgery and over-the-counter medications will largely render such insurance financially pointless. People are unlikely to buy coverage for these services unless they already plan to use them, at which point the insurance would cost as much or more than the procedure or product itself. Even where financially viable, such a modest insurance market would hardly sustain an enormous firm like PTHI.
PTHI has issued long- and short-term bonds totaling just over $43 billion in principal. Depending on the issue date and duration, interest on these bonds ranges from 3.5 percent to 7.2 percent. All are rated AAA.
In the end, although SPH could, in principle, enhance the healthcare and thereby the health of many Americans, the cost of moving to that system from our current system would involve an enormous, hitherto undiscussed cost: (1) replacing private insurance with government-financed SPH will replace the great majority if not the entirety of health insurance services that currently are privately provided; (2) where such private health insurance is investor-owned (whether publicly traded or as a mutual insurer),39 those owners will lose all or most of their assets' value; and (3) in the process, a significant piece of the GDP must, as discussed below, be replaced by government payments to those who formerly owned those assets. As noted just above: according to CMS, national health expenditures in 2020 accounted for nearly 20 percent of the U.S. GDP, and private health insurance spending constituted 28 percent of NHE,40 hence private health insurance accounted for around 5.6 percent of the GDP.
We turn now to the question of whether the Takings Clause requires compensating those investor-owners and bondholders. For efficiency, this article does not address whether the hundreds of thousands of people employed by private insurers will have a Takings claim of their own. That question depends heavily on the at-will nature of many employment contracts, granting also that some employees might nevertheless have some sort of claim.
Overall Concepts: History
The Fifth Amendment's Takings Clause states: " . . . nor shall private property be taken
for public use, without just compensation."41 The most familiar kind of Taking appears in classic eminent domain: the county condemns Farmer Brown's land so it can build a new road, hence it must pay Brown a just amount.42
We begin with a bit of history, as the Supreme Court's Takings jurisprudence is best understood in terms of three periods.43
Prior to 1922, the Takings Clause was understood exclusively as protection from appropriations and physical invasions. Regulatory restrictions, in contrast, were not conceived of as Takings, but rather were analyzed under other theories, such as whether the regulation fell properly within the state's police power.
A key example of those early days, and arguably the nearest historical equivalent to a government takeover of a private industry analogous to SPH and health insurers, occurred over a century ago. During the Prohibition era, the regulation and then outright prohibition of alcoholic beverages destroyed the economic value of, and sometimes the actual physical property, owned by alcoholic beverage producers. This included beer, whiskey, and wine poured onto the ground, as well as the breweries, wineries, distilleries, and equipment used to manufacture them, plus any cropland such as vineyards used solely to produce such beverages.
In this first period, Takings jurisprudence was not nearly as well-developed as it is today. And the U. S. Supreme Court had not yet issued Pennsylvania Coal Co. v. Mahon44 (discussed infra), which recognized that sometimes a regulation could go "too far" and require compensation.
Thus, Mugler v. Kansas45 concerned an early, state-based prohibition of alcohol. Here, the Court downplayed any Takings arguments on the ground that the state had the right to guard public health, safety, and morals, and protect against public nuisance. The focus was thus on state police powers, not Takings.
Jacob Ruppert, Inc. v. Caffey46 featured the Wartime Prohibition Act, which forbade using grains, cereals, fruit, or other food to produce alcoholic beverages until the war (WWI) was over. The Court dismissed a Takings challenge: "there was no appropriation of private property, but merely a lessening of value due to a permissible restriction imposed upon its use."47 Everard's Breweries v. Day48 arose from a narrowing of the definition of "intoxicating" following the 18th Amendment and national prohibition. The Court did not address Takings issues other than via one terse sentence with no elaboration or argumentation: "It cannot be said that its action in this respect violated any personal rights of the appellants protected by the Constitution. That it did not take their property in violation of the Fifth Amendment, is clear."49
Hence, in this first era of Takings jurisprudence, until 1922 the Court essentially rejected the concept of "inverse condemnation,"50 confining Takings to government appropriations or physical invasions of property. "When cases involving mere restrictions on the use of property reached the Court, they were tested under due process, scope of the police power, or ultra vires theories."51
The second era began in 1922 when the Court first announced the concept of a regulatory Taking, i.e., the idea that a government regulation, shy of a physical invasion or complete appropriation of property, could actually be a Taking if severe enough. Suppose government actions cause intermittent flooding of land, for instance, or suppose a zoning or environmental restriction markedly diminishes the value of someone's property. These more nuanced cases would require more nuanced analysis.
In Pennsylvania Coal Co. v. Mahon52 a state statute forbade mining anthracite coal under ground in such a way that it would cause subsidence of homes. In response, the coal company argued that its rights to mine the coal were effectively extinguished.53 The Court acknowledged a trade-off. On one hand: "[g]overnment hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law."54 On the other hand: "while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking."55 Thus heralded the birth of regulatory Takings. As the Court later noted, the Takings Clause was "designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."56
Until 1978, however, the Court offered little guidance as to when a regulatory Taking had occurred, continuing instead to focus mainly on physical occupations and appropriations. Hence the third, modern period of Takings jurisprudence began in 1978 as the Court announced more specific guidance governing regulatory Takings in the landmark case, Penn Central Transportation Co. v. New York City.57 Our more detailed discussion of per se Takings and regulatory Takings, infra, will lay the groundwork for our subsequent showing that, under contemporary Takings jurisprudence, SPH almost certainly does exact Takings from those who own the stocks and bonds of healthcare insurers.
Importantly, the Takings Clause is not limited to real property. "Nothing in the text or history of the Takings Clause, or our precedents, suggests that the rule is any different when it comes to appropriation of personal property. The Government has a categorical duty to pay just compensation when it takes your car, just as when it takes your home."58 Thus, over the years the Takings Clause has applied to tangible property such as fixtures and equipment located on real property,59 presidential papers made while in office,60 and the feathers and body parts of eagles.61 Intangible property also counts: the interest on lawyers' trust accounts,62 contract rights such as a materialman’s lien63 or war risk insurance,64 tenure in the academic setting,65 lease and rental rights,66 and intellectual property such as trade secrets67 have all been deemed compensable property under the Takings Clause.68 Thus, it is clear that financial assets such as stocks and bonds – here, as connected with a healthcare insurer – are property capable of Takings Clause protection, just as any other kind of intangible property.
And so a distinction emerges. Some kinds of Takings are so clear-cut that, if the event has occurred, a Taking is established and compensation is due. These are per se, or categorical, Takings. Other government actions, in contrast, require a more detailed inquiry into the nature and extent of that regulation's impact on someone's property. These are regulatory Takings.69
Per se Takings
Physical appropriation and physical invasion are typical per se Takings. It matters not how small the invasion is. In Loretto v. Teleprompter Manhattan CATV Corp.,70 the state authorized a cable TV company to install its equipment on the roofs and sides of buildings, including plaintiff's apartment building. This was a Taking, the Supreme Court concluded, emphasizing that the size of the occupied space is irrelevant: small though it was, it was nonetheless a Taking requiring compensation.71
Neither must the invasion be permanent. In Arkansas Game and Fish Commission v United States,72 the U.S. Army Corps of Engineers authorized intermittent flooding that caused significant damage to the timber on forest land owned and managed by the Arkansas Game and Fish Commission. Such recurrent flooding, even though finite in duration, was not exempt from liability under the Takings Clause.73
More recently the Court held that state-authorized visits by union organizers onto an employer's farm property constituted a categorical Taking: "The access regulation appropriates a right to invade the growers' property and therefore constitutes a per se physical taking. The regulation grants union organizers a right to physically enter and occupy the growers' land for three hours per day, 120 days per year."74 As the Court emphasized, "[t]he right to exclude is 'one of the most treasured' rights of property ownership."75
Complete or near-complete destruction of financial value can also present a categorical Taking. In Lucas v. South Carolina Coastal Council, a developer had purchased oceanfront land in hopes of building residential properties. Subsequent environmental restrictions prohibited such construction, effectively depriving the owner of "all economically beneficial use" of his land.76 This, said the Court, was a per se Taking.
Lucas featured regulatory action with a relatively rare impact: complete destruction of property value, equivalent to an ouster.77 Incomplete destruction of value achieved by lesser means than government occupation or destruction, however, requires a more nuanced analysis. Highly constraining government actions, if sufficiently severe, can be regulatory Takings.
As noted above, living together in a civilized society entails give and take, and the government cannot be required to compensate every time a regulation designed to help everyone imposes a cost on some people. "Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law."78
As noted above, although the Supreme Court established in 1922 that "if regulation goes too far it will be recognized as a taking,"79 significant guidance defining "too far" did not emerge until 1978, in Penn Central Transportation Co. v. City of New York.80
In Penn Central, New York City's Landmarks Preservation Law had been enacted to protect historic landmarks and neighborhoods from decisions that would destroy or fundamentally alter such places' character. When Grand Central Terminal – owned by the Penn Central Transportation Co. – was formally designated a landmark, its owners were forbidden to build their planned multi-story office building above the Terminal. This markedly reduced the property's value, the owners argued, hence the diminution should be compensated as a government Taking.
In a ruling that, itself, stands as a landmark, the Supreme Court emphasized that:
In a wide variety of contexts the government may execute laws or programs that adversely affect recognized economic values without its action constituting a "taking," and in instances such as zoning laws where a state tribunal has reasonably concluded that "the health, safety, morals, or general welfare" would be promoted by prohibiting particular contemplated uses of land, this Court has upheld land-use regulations that destroyed or adversely affected real property interests. In many instances use restrictions that served a substantial public purpose have been upheld against "taking" challenges.81
These are fact-intensive inquiries, the Court indicated, whose aim is "to identify regulatory actions that are functionally equivalent to a direct appropriation of or ouster from private property, each of them focuses upon the severity of the burden that government imposes upon property rights."82 Rather than any set formula, the analysis considers three main factors: (1) the regulation's economic impact, (2) its interference with reasonable investment-backed expectations, and (3) the character of the government action.83 As the Court noted, "[a] 'taking' may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good."84 Numerous subsequent cases have been decided under the Penn Central criteria.85
Once a Taking is found, the question turns to compensation. As the overriding concept, "[t]he Fifth Amendment does not allow simply an approximate compensation but rather requires 'a full and perfect equivalent for the property taken,'"86 which is “the full monetary equivalent of the property taken."87 "In determining the amount of just compensation for a taking, a court seeks to place a claimant “in as good a position pecuniarily as if his property had not been taken."88
Over the years this basic precept has been specified with greater, yet not always generous, detail. "In the ordinary case, for want of a better standard, market value, so-called, is the criterion of that value."89 Two fairly rare exceptions to FMV have been identified: "when market value is too difficult to ascertain, and when payment of market value would result in 'manifest injustice' to the owner or the public."90 The Court has noted other caveats: FMV is generally "the market value of the property at the time of the taking" rather than at some prior or subsequent time.91 "[P]erhaps because of its very uncertainty, the interest in anticipated gains has traditionally been viewed as less compelling than other property-related interests."92 Consequential damages likewise are not included.93 The focus in calculating FMV is the value of the property itself, not the cost of replacing that property and its facilities.94 Finally, compensation focuses on what the owner loses, not on what the government gains.95
Single Payor Healthcare and the Takings Clause
We now bring the foregoing Takings analysis to the stock owners and bondholders of PTHI and other publicly owned healthcare insurers, where those insurers are replaced by universal SPH. The proper analysis could be either per se or regulatory, depending on the details. Here, we take it as a given that a move to government-controlled and -funded healthcare is done "for public use," per Fifth Amendment requirement.96 However promising (or not) such a move might actually be for improving access to and quality of healthcare, its goal is clearly to improve public welfare.
As we recall, PTHI currently sells a variety of services. Among other things, its Insure and TechHealth platforms sell risk-bearing health insurance, HMO plans, medi-gap insurance for Medicare beneficiaries, and banking services for FSA, HAS, and HRA-linked insurance plans. These will entirely disappear with SPH, which will extinguish private insurance, including high-deductible plans and employer self-insured plans, wherever they would compete with the national plan. However, PTHI also provides services such as third-party (benefits) administration (TPA), technology services for quality analysis and telehealth, wellness programs, remote patient monitoring, and navigation services for those seeking a health plan. Some of these might survive, depending on whether (1) the government SPH hires outside firms to conduct such functions and, if so, whether (2) it hires PTHI to provide any of those services.
If essentially nothing of PTHI survives, we must use a per se Takings analysis. If some of its services survive, then a regulatory analysis will be appropriate.
Per se Analysis
As discussed above, the Takings Clause encompasses personal property – both tangible and intangible – just as it does real property. This includes such property as interest on attorneys' trust accounts, contract rights such as a materialman’s lien, lease and rental rights, and intellectual property such as trade secrets. Hence, financial property such as stocks or bonds is assuredly encompassed.
As the Supreme Court observed a century ago: "What makes the right to mine coal valuable is that it can be exercised with profit. To make it commercially impracticable to mine certain coal has very nearly the same effect for constitutional purposes as appropriating or destroying it."97 And in Penn Central: "The Court has frequently held that, even where a destruction of property rights would not otherwise constitute a taking, the inability of the owner to make a reasonable return on his property requires compensation under the Fifth Amendment."98 And per Lucas: "where regulation denies all economically beneficial or productive use of land," the result is, in essence, a "total regulatory taking" – ergo, a categorical, per se taking.99
Of note, the economic destruction need not always be total. In United States v. Causby, the United States Army and Navy conducted frequent, low-altitude training flights over Thomas Causby's chicken farm, frightening numerous chickens to death and reducing productivity substantially. "The result was the destruction of the use of the property as a commercial chicken farm."100 The Court recognized that the "enjoyment and use of the land are not completely destroyed. But that does not seem to us to be controlling. The path of glide for airplanes might reduce a valuable factory site to grazing land, an orchard to a vegetable patch, a residential section to a wheat field. Some value would remain. But the use of the airspace immediately above the land would limit the utility of the land and cause a diminution in its value."101
Even in Lucas, in which subsequent environmental regulation thwarted a developer's hopes for building houses on coastal property, the land still retained some value. As Justice Blackmun observed in his dissent, "Petitioner can picnic, swim, camp in a tent, or live on the property in a movable trailer. State courts frequently have recognized that land has economic value where the only residual economic uses are recreation or camping.…Petitioner also retains the right to alienate the land, which would have value for neighbors and for those prepared to enjoy proximity to the ocean without a house."102
And in Horne v. Department of Agriculture103 the Court responded to the argument that raisin growers whose crops had been partially taken by a government price control program could use their land differently:
The Government contends that the reserve requirement is not a taking because raisin growers voluntarily choose to participate in the raisin market. According to the Government, if raisin growers don’t like it, they can 'plant different crops,' or 'sell their raisin-variety grapes as table grapes or for use in juice or wine.' . . . 'Let them sell wine' is probably not much more comforting to the raisin growers than similar retorts have been to others throughout history. In any event, the Government is wrong as a matter of law. In Loretto, we rejected the argument that the New York law was not a taking because a landlord could avoid the requirement by ceasing to be a landlord. We held instead that 'a landlord’s ability to rent his property may not be conditioned on his forfeiting the right to compensation for a physical occupation.' 458 U.S., at 439, n. 17, 102 S.Ct. 3164. . . . As the Court concluded, property rights 'cannot be so easily manipulated.' Ibid. 104
We already noted that SPH's extinguishing of PTHI's at-risk insurance products will destroy most of the company's value. If under SPH the government additionally brings TPA, information technology (IT), wellness, telehealth, and all other ancillary healthcare-related services in-house rather than buying them in the private marketplace, or if government buys these services from other providers in the market, then the value of PTHI's stocks and bonds will be entirely or almost-entirely nullified. By implication, this would be a per se Taking compensable without further discussion.105 The only remaining question will concern the measure of compensation, as discussed below.
In a second scenario, we hypothesize that some of PTHI's marketable services survive, perhaps if it provides TPA, wellness, quality metrics, or telehealth services for the government plan. As noted above, a regulatory analysis follows no set formula, but rather is a fact-intensive exploration of three factors: (1) the character of the government action, (2) its economic impact, and (3) the reasonableness of parties' investment-backed expectations.
Character of Government Action
The "character" of a potential government Taking has been variously – and admittedly rather vaguely – described. It includes "[t]he purposes served, as well as the effects produced, by a particular regulation…."106 Character is particularly captured by "the degree to which it interferes with legitimate property interests.…the magnitude or character of the burden a particular regulation imposes upon private property rights."107 We are looking for "regulations whose effects are functionally comparable to government appropriation or invasion of private property."108 "[A] use restriction on real property may constitute a 'taking'. . .if it has an unduly harsh impact upon the owner's use of the property."109
For our purposes, perhaps the most pertinent discussion of character comes from Hodel v. Irving.110 An amendment to the Indian Land Consolidation Act of 1983 provided that no undivided fractional interest in Indian lands could descend by intestacy or devise, but rather would escheat to the tribe.111 Although Congress arguably had good reasons for enacting the provision, it included no provision for compensating the landowners whose interests were forfeited under that amendment.112 In a regulatory Takings analysis, the Court first noted that although the economic impact might be substantial, the parties' investment-backed expectations would be "dubious."113 Notwithstanding those two factors, the Court then emphasized the third Penn Central factor, observing that the "character of the Government regulation here is extraordinary.…[T]he regulation here amounts to virtually the abrogation of the right to pass on a certain type of property—the small undivided interest—to one's heirs. In one form or another, the right to pass on property—to one's family in particular—has been part of the Anglo-American legal system since feudal times."114 Accordingly, the Court found that a regulatory Taking had occurred.
If SPH displaces private health insurance, the character of the action is not the classic physical taking or invasion of real property.115 Rather, it is a (near-)complete government takeover of a large segment of the private sector economy (5.6 percent of the GDP, as noted). Surely this is at least as "extraordinary" as the alteration of inheritance rights in Hodel.
For any publicly-traded healthcare insurer the economic impact of a transition to SPH will, of course, depend on which of its business units survives at all, and what proportion of each unit survives. If the government plan does not purchase any of PTHI's TPA or IT services, for instance, then those units will be extinguished, right alongside all of PTHI's risk-bearing insurance, HMO products, and banking services. If the government does purchase some of PTHI's TPA or IT services, then the overall economic impact will depend on what revenue PTHI now earns, whether that revenue is sufficient to sustain even a drastically trimmed-down company, and, in the end, what proportion of PTHI actually survives. At most, that surviving fragment will be vastly smaller than PTHI's value prior to SPH – an enormous economic impact. Accordingly, the bottom line analysis under the "economic impact" factor is: it depends. Each company must be assessed individually to discern which of its units disappear and which ones survive, with what economic strength.
Reasonableness of Investment-Backed Expectations
Publicly traded private health insurance companies have been a significant feature of United States healthcare since at least the early 1950s, when Aetna Insurance Company began offering major medical coverage,116 followed by UnitedHealth Group's incorporation in 1977117 and Cigna in 1982.118 The 1973 Health Maintenance Act permitted hospitals, insurers, clinics, and physicians to operate HMOs as for-profit entities, adding further to the private health insurer market,119 while beginning in the mid-'90s many traditionally not-for-profit Blue Cross/Blue Shield insurers converted to for-profit entities.120
In sum, for well over a half-century, investors have had the opportunity to participate in the healthcare insurance market. Hence over many years they have held entirely reasonable expectations that their investments would continue to grow – and yes, sometimes shrink – just as any stock in a normally functioning, fluctuating free market. Bondholders likewise have reasonable expectations that their principal and contractually-promised interest will be paid, particularly in companies such as PTHI with AAA-rated bonds.
Any such investment can of course go poorly, because any particular company can turn out to be poorly managed or experience other market adversities. However, a complete government takeover of an entire, enormous sector of the private economy is not such a normal, predictable exigency. Someone who 10 years earlier bought stocks or bonds in a publicly traded healthcare company would have had no reason to expect such an investment to be decimated in one fell swoop by an act of Congress. Hence, the Supreme Court would very likely regard PTHI's stock- and bond-holders as holding reasonable investment-backed expectations.
If SPH were deemed to exact a per se Taking of PTHI or, alternatively, to the extent that all three factors of a regulatory analysis are satisfied and SPH constitutes a Taking of private insurance stocks and bonds, the next question is "just compensation." As noted above, in any given case we must first answer the factual question of what portion, if any, of the business survives the transition to fully government-controlled SPH.
We begin with some overall considerations. For stocks, we do not include anticipated gains.121 These would be too uncertain and too difficult to calculate credibly. Thus, we would not calculate compensation under the argument that, because PTHI's stock had risen an average of five percent per year for the past 10 years, its stockholders should be similarly compensated for the next 10 years' anticipated gain. Rather, we look for the stock's value "at the time of the taking."122 For bonds, of course, we do consider anticipated gains, which are readily calculable: we look to the contract and payment history, which specify the holder's principal plus interest rate, identifying quite precisely how much has been paid and how much is still owed.
Beyond these findings, however, several large questions will fuel hot debate and doubtless litigation. Here we only suggest important considerations for compensation, well shy of any formula.
First, we must appropriately spot the point at which we identify PTHI'S FMV prior to government takeover. The "time of the taking" is the usual standard. But "this Court has refused to designate market value as the sole measure of just compensation. For there are situations where this standard is inappropriate. … [W]hen market value has been too difficult to find, or when its application would result in manifest injustice to owner or public, courts have fashioned and applied other standards."123 As noted by Justice O'Connor: "Courts … must attend to those circumstances which are probative of what fairness requires in a given case."124
Here we note that stock markets fluctuate, sometimes widely, for many reasons. Only some of these reasons will be relevant to determining the value of PTHI at the time of a government Taking. On one hand, if PTHI's value at a given point has been diminished by ordinary events such as an inflationary trend that spooks the entire market, then that diminution is not attributable to a government takeover of private insurers. On the other hand, it is reasonable to expect that, as momentum builds for passing SPH legislation, the market value of PTHI will feel the impact well before the Act is passed. As the move toward SPH becomes stronger, the value of publicly-traded health insurance stocks is likely to weaken at first, then at some point plummet dramatically in anticipation of becoming nearly or completely worthless.
Given these realities, fairness requires that the moment we identify as the FMV of PTHI and other healthcare insurers should not be the stock's decimated value at the "stroke of midnight" when the government plan officially takes over. Rather, we must look to some earlier point, such as the point at which a government takeover first becomes a plausible possibility. Defining " plausible possibility" is, of course, likely to precipitate considerable discussion. And litigation. Perhaps another way to determine FMV is to use other kinds of insurance companies that insure life or health (as with life or casualty insurance) as a benchmark.
For bonds we look not to the gyrations of the bond market, but to the much clearer elements of each bond purchase: principal, interest, and time until the bond matures to repay the principal. If nine years earlier someone purchased a 20-year bond for $50,000 at four percent interest, then just compensation will arguably be the return of $50,000 plus the total additional interest that would have accrued by the end of the 20 years.
Second, identifying the appropriate FMV may be rendered even more difficult by the high likelihood that the entire market will likely be thrown into wide-scale gyrations at the very thought of a government takeover of such a large sector of the private economy. Here, too, negotiation and quite likely extensive litigation may be needed to resolve the question – adding further to the cost of any conversion to SPH.
Third, the fact that some residual value may remain does not negate the reality of a Taking. Some 125 years ago the Court established an exception to the rule that "when part only of a parcel of land is taken for a highway, the value of that part is not the sole measure of the compensation or damages to be paid to the owner; but the incidental injury or benefit to the part not taken is also to be considered. When the part not taken is left in such shape or condition, as to be in itself of less value than before, the owner is entitled to additional damages on that account."125
Fourth, we need to consider the point at which any particular person actually purchased PTHI stocks. It is one thing to have bought shares long before SPH was a serious possibility. Last-minute purchases, perhaps made in hopes of cashing in when the government pays shareholders for its Taking, could be considered suspect, hence less deserving of the full compensation owed to longer-term investors.126 Their "investment-backed expectations," after all, would be considerably less reasonable. Similarly, it is one thing to buy PTHI bonds in a normal market when they are still rated AAA. If, as the prospect of government SPH looms larger, those bonds are downgraded to a B-, then here too the compensation should arguably be lower than that owed to the earlier buyers.
It is not this article's purpose to hash out all of the details of compensation, but rather to point toward general considerations. Suffice it to say, those details would be complex.
Conclusion: You Can't Get There from Here
The financial pros and cons of shifting U.S. healthcare into entirely government-run, government-financed SPH are vigorously debated, as noted above. Will it improve healthcare and outcomes or not? in what ways? Will citizens trust a government-run plan? Will too many providers exit the field if their incomes are markedly diminished? Or will they make up for lost income by ramping up the services they deliver? To what extent can employers be required to redirect their current healthcare expenditures toward the government plan? How far must taxes be increased to pay for it all?
This article is indifferent to all of these questions. Regardless of SPH's merits, we focus here on a completely different matter: the transition's collateral damage to private healthcare markets and particularly to these companies' stock and bond owners. In a worst-case analysis, let us suppose that PTHI's FMV plummets to zero from a current market capitalization of nearly $400 billion and a bond debt of around $40 billion.127 If Jones owns PTHI stock when its FMV is $100,000, followed by a drop to only $2,000 post-SPH, the Takings doctrine requires the government to pay him $98,000. Adding in all of the other Joneses, and all of the Smiths who own bonds in PTHI and other publicly traded health insurers, the ultimate figure approaches 5.6 percent of the GDP.128
Aside from the question of whether the country could afford to pay the owners of private health insurers anywhere near such amounts, we must additionally consider the likely-seismic ramifications throughout the rest of the markets, following government takeover of this large sector of the economy. And to these, finally, add the costs of litigation – not just to establish the existence and fair compensation for Takings of stock- and bondholders' property, but potentially to meet challenges from others whose economic interests are damaged in the process. These include over a million employees of health insurers — both for-profit and not-for-profit. In addition, add the large number of individuals who work for healthcare providers in coding, billing, precertification, and appeals of denials. Abrupt termination of their employment due to SPH likely would have its own significant effect on the economy, regardless of whether loss of these jobs constitutes a Taking, beyond the scope of this article.
So why do we anticipate such financial catastrophe here in the United States but not in other countries that have embraced one or another form of universal healthcare? History is relevant. The United States, virtually alone among developed nations, still does not ensure universal access to healthcare.129 When one delves into the other nations' history, one finds that universal access emerged at fairly early stages and, especially, without first developing a robust private equity market for healthcare insurance.130 The United States, in contrast, did develop such a market, which would be nearly or entirely destroyed if SPH is to take place. After all, single payor healthcare is – by definition, as discussed at the outset – the sole payor for any and all healthcare services it covers. The collateral costs of eviscerating the private insurance market would be huge and, if we are correct, likely insuperable.
Finally, we add a note regarding Supreme Court jurisprudence. Concededly, the lineage of the Court's Takings jurisprudence is not a model of clarity and consistency. Cases that might seem to warrant compensation do not always win.131 Neither can we assume that stare decisis will always prevail.132 Nevertheless, a fairly strong trend seen in recent years' conservative-leaning Court has tended to favor property owners alleging Takings.133 Accordingly, it is reasonable to suppose that the foregoing analysis would quite possibly hold sway if SPH were actually enacted, then challenged on a Takings analysis.
Thus we conclude: You can't get there from here. Single-payor healthcare would almost certainly be taken by the Takings Clause.
© 2022 E. H. Morreim, A. Jacobs
The authors acknowledge with gratitude the very helpful comments provided on earlier drafts of this article by Robert Jerry, JD; Michael Wolfe, JD, PhD; Peter Jacobson, JD, MPH; and Michael Clark, Esq.