In a 5 to 4 decision the Supreme Court upheld the Federal Patient Protection and Affordable Care Act (PPACA), known to many as “Obamacare.” Somewhat surprising was the Court’s rationale. Leading up to this decision many experts thought Chief Justice Roberts might uphold the law in an effort to overcome public concern for judicial activism. And when his conservative roots limited his willingness to uphold the law under the Commerce Clause, he turned to the federal government’s backup argument: the tax clause.
To be sure, the tax clause was an afterthought. Countless politicians promised the American public that no new taxes would be implemented. Only when this case reached the federal courts did government counsel raise the convenient possibility that a tax clause argument would sustain otherwise unconstitutional legislation. Moreover, every lower federal court to reach the issue held that the mandate was not a tax and, so, the Anti-Injunction Act and taxing power would not sustain the PPACA’s individual mandate.
Making matters more convoluted, Chief Justice Robert’s Court only reached the merits after finding that the Anti-Injunction Act did not bar judicial review. The Anti-Injunction Act prohibits preemptive lawsuits designed to challenge the application of a tax. In other words, if the mandate was a “tax,” then the Court should never have addressed the merits. The Court’s landmark decision today leaves many scholars wondering how the mandate is not a “tax” under the Anti-Injunction Act, but then a “tax” for constitutional purposes.
We will post a complete review of the decision and its precedential effect. In the meantime, we pause to consider the landscape going forward. The most shocking element in this litigation was the federal government’s shear inability to grasp the practicalities of their mandate. The mandate was designed to lure healthy individuals into coverage, primarily those ages 25 through 35 who are unlikely to suffer chronic diseases or major health issues. The federal government argued that their participation is essential to pay for the increased costs of preexisting conditions. But for those individuals, health insurance coverage might make little financial sense based on risk projections.
If anything, the health insurance mandate creates a perverse incentive to drop insurance coverage by those same individuals. Consider the newfound availability of coverage through “guaranteed issue” provisions in the PPACA with the following hypothetical. Joe is a healthy 28 year-old male with no medical complications or history of disease. Health insurance premiums might cost him over $6,000 per year, and likely more as rates increase shortly. The CBO estimated that bronze level plans would cost $5,000 for someone like Joe. Under the PPACA, penalties for the uninsured are fixed by statute at no more than 300% of the “applicable dollar amount.” After 2016, that baseline dollar amount is $695 (adjusted each year for inflation; 300% of $695 is a $2,085 penalty). See Code Sec. 5000A(c)(3)(A)). So by remaining without insurance, Joe could save himself roughly $3,000-4,000 per year, even if he pays the PPACA penalty. True, the penalty may also be equivalent to 2.5% of Joe’s income if he makes enough money. But even if Joe makes $100k, at $2,500 per year his penalty still remains perhaps one third of an insurance premium.
The Federal Government asks, “why would Joe want to pay money and receive nothing in return?” After all, surely Joe would rather pay the insurance companies’ exorbitant premiums and at least receive bronze level coverage; something rather than nothing. But perhaps not. At his age, Joe is concerned mostly about catastrophic care in the event of a car accident, for example, that leaves him hospitalized. Note, however, that the average emergency room visit is not as high as the Feds would have you believe. At just around $2,000, Joe can afford the occasional emergency room visit and still save money over his inflated insurance premium. Joe may also realize that cheaper insurance packages pay out very little in coverage. So Joe must pay hefty co-pays and deductibles. He knows that even with insurance coverage he would pay most of his medical care out of pocket on a yearly basis, even despite the PPACA’s promise to require free basic preventative care.
He also realizes that, in the event of a catastrophic injury, the Emergency Medical Treatment and Active Labor Act (EMTALA) requires that hospitals “stabilize” him without regard to his insurance coverage. EMTALA broadly defines an “emergency medical condition” and “stabilization” so that a hospital cannot release the patient until “no material deterioration of the patient’s condition is likely to result from the transfer or is likely to occur during the transfer.” Add to that mix tort liabilities and medical insurance concerns, and no rational hospital or treating staff would discharge Joe until he is good and ready.
What about the lingering effects of his catastrophic injury, or the chronic disease Joe just contracted? Well, Joe knows that under the PPACA he can enroll in a suitable insurance program from his hospital bed. With guaranteed coverage, and reduced premiums for those with preexisting conditions, Joe can get coverage when the need arises. Of course, Joe is personally liable for the expense of his hospital stay. If Joe is hospitalized for a considerable period, those exorbitant costs would give him a basis to file for bankruptcy. Medical bankruptcies are the sort of uncompensated health care that originally brought us to this point.
“But surely that’s immoral and unethical; no one would prey on the system like this,” says a federal government that simply refuses to learn from history. Ask any homeowner living in Arizona or Las Vegas about the line between morality and economics. When the real estate market sank profoundly, foreclosure became the preferred strategy. And any stigma that once darkened the practice vanished overnight. Why wouldn’t Joe save himself thousands of dollars during his healthy years at the expense of insurance companies and the federal government?
If that question troubles you, then surely you see the inequities involved when the Federal Government imposes an insurance regime on those who statistically purchase insurance already. The Feds addressed the gap in insurance coverage by exempting from the mandate those historically without insurance. Where insurance coverage exceeds eight percent of one’s household income, the mandate does not apply, meaning no tool persuades those individuals to purchase health insurance at all. So for Joe, odds are that the mandate does not apply to him anyway, unless he makes a considerable income (e.g., over $70k). Ultimately, the federal government needs insurance premiums to fall considerably or the mandate’s sweeping effect narrows. Consider the twisted logic in that equation.
Joe is a young worker who earns a decent salary for his age, but not enough where any reasonable insurance premium is less than eight percent of his salary (by the CBO’s estimates, he needs to earn more than $65k before the mandate kicks in). Congress needs the mandate to force people like Joe into coverage, so that premiums will not increase and insurance companies will not fail. But Congress also requires that insurance companies give Joe an insurance policy automatically when he becomes significantly ill.
Joe’s illness costs a fortune. And the insurance companies must now cover Joe and all similar patients at great expense. Obviously, premiums must be adjusted for this influx of high-risk individuals and those with pre-existing conditions. But as premiums increase, so too does the universe of people like Joe whose salaries are not high enough to put premiums below the eight percent threshold. In short, premiums will increase faster than salaries. When that happens, more citizens are exempted from the PPACA’s individual mandate. And when that occurs, thanks to the guaranteed issue provisions, more individuals will market-time their decision to purchase insurance.
What the PPACA actually did was increase costs and premiums for those who would follow the law and purchase insurance. For the many young or healthy adults who cannot afford insurance or choose to self-insure against minor health issues, the PPACA’s mandate likely fails of its essential purpose. It probably does not drastically change the behavior in those most likely to contribute to uncompensated health care. The PPACA should have endeavored to reduce the cost of medical care, not the cost of health insurance contracts. In the end, the PPACA made us more beholden to private insurers than ever before.
Today the Court did strike the PPACA’s reforms that would expand Medicaid to cover more lower-income individuals. PPACA’s Section 1396c would have allowed the federal government to pull funding to states that failed to expand Medicaid up to 133% of the poverty level. We agree with the decision to honor Tenth Amendment principles. However, the opinion today increases the universe of lower-income individuals who lack Medicaid coverage beyond what Congress thought necessary to limit uncompensated health care. Never mind the fact that those lower-income individuals are also least likely to have health insurance. Thus, here again, the majority opinion portends unfortunate consequences.
In sum, the practical effect of the Supreme Court’s ruling today may have sealed our future for health care reform. Many predicted that Obamacare would eventually result in a universal government-sponsored system after health insurance companies cannot viably compete at a profit or premiums rise far beyond affordability. The “death spiral” for premium increases noted in the Fed’s legal briefs is not avoided in the present system. Their corrective measure is to increase the PPACA’s penalty provisions to exceed the cost of health insurance premiums. Only when the “choice” to insure is equal or less than the penalty will the herd go to drink. Who on Capitol Hill will vote to take yet more money from struggling Americans in this political climate? And how high will the penalty get as insurance premiums continue to rise?
Insurance reforms are necessary, and we are best served by providing quality medical care to those in need. But significant questions remain as to whether the PPACA was the best approach. The Court’s token effort to limit federal expansion under the Commerce Clause is positive, and fools gold for those that hoped to limit federal regulation of our intimate medical decisions. Only time will tell how Justice Roberts’ decision will affect his legacy. Let’s hope for all our sake that this decision is not a sign of things to come.