Following oral argument in the Supreme Court case on ObamaCare, I predicted that the statute would be ruled unconstitutional. As you no doubt know by now, that prediction turned out to be dead wrong. And my prediction was scuttled by none other than Chief Justice John Roberts. So much for my predictions.
And that raises two questions. Why did the Supreme Court uphold the law? And what does it mean for us?
The Supreme Court’s Decision on ObamaCare
ObamaCare requires individuals to buy health insurance. It’s called the individual mandate. If you don’t buy health insurance, the government will slap you with what the law calls a “shared responsibility payment” (I think George Orwell first coined that term).
This “penalty,” as the law later calls it, is relatively small at first–$285 per family of 4 or 1% of income, whichever is great. But it rises to $2,085 or 2.5% of income, whichever is great, by 2016. Given that the penalty is an annual payment, it’s a good deal less than what health insurance would actually cost. But it’s still a lot of money.
The Supreme Court first found that the federal government did not have the power to force Americans to buy health insurance. The analysis was under the Commerce Clause of the Constitution. The Commerce Clause has basically been used to justify all kinds of federal government action. Think of it as a rubber stamp on anything the federal government wants to do. So it was refreshing to see the Court actually impose some limits on the Commerce Clause.
But here is where thinks get really shaky. The Supreme Court concluded that the individual mandate was—drum roll please—not a mandate after all. It turns out that ObamaCare doesn’t force us to do anything. Instead, you have to pay a tax—not a penalty—if you don’t buy health insurance. So we have a “choice” after all.
And notice that the penalty has been magically transformed by the Court into a tax. That wasn’t by mistake. The Court upheld the individual mandate choice under the federal government’s power to tax. Welcome to the world of law.
You can read the entire ruling here (pdf).
So How Does the Decision Affect Us?
While I think the reasoning of the decision is suspect, the results are mixed. There are some good things in ObamaCare and some not so good things.
As noted above, the individual mandate remains in place. On the bad side, it takes away an individual’s choice not to buy health insurance. Technically speaking it doesn’t force you to buy insurance, but it hits you with a hefty penalty if you don’t. The Supreme Court may call that a choice, but let’s be honest, it ain’t a choice. You’re forced to pay something one way or another.
On the good side, requiring everybody to buy health insurance is the only way I know to spread risk and costs among the general population. It’s exactly what employers do. That’s why when you get a job at a company that offers health insurance, you have to opt in for the insurance unless you have insurance from another source, such as a spouse’s employer. The result is that younger, healthier employees pay more than they otherwise would to cover older, less healthy employees. But it spreads the risk, making insurance affordable for everybody.
Related to the individual mandate is the requirement for health insurance companies to cover preexisting conditions. At first glance, this seems like a positive result. And it is to a point. The problem arises when you consider the penalty for not getting health insurance.
Because any preexisting conditions must be covered, it’s been predicted that many will pay the penalty instead of buying more expensive health insurance. And should they get sick, they’ll buy insurance then, secure in the knowledge that preexisting conditions will be covered.
Health insurance exchanges at the state level still remain in place. These exchanges are designed to make individual health insurance policies less expensive. We’ll see.
The decision also leaves in place an important provision affecting young adults. Young adults up to age 26 can remain on their parent’s health insurance policy. So far about 2.5 million have benefited from this provisions.
The decision does overturn one aspect of the law. ObamaCare ushered in a massive expansion of Medicaid benefits. The law offers some funding to states to assist them in paying for these expanded benefits. But the law went a step further. If states refused to expand Medicaid, the law not only took away the new funds, but it also took away federal aid the states are already receiving. The Court said that was a no-no.
One of the big concerns that still remains is costs. The heated debate rages on as to whether or not ObamaCare will lower health care costs. The promise of lower insurance premiums has already proven to be false. But perhaps there could be savings down the road. One significant risk is increased state taxes as states try to cope with the increased costs of Medicaid and state-sponsored health insurance exchanges.
So now it’s your turn. What do you think about the Court’s decision?Topics: Financial News