Did the Supremes cripple Obamacare after all?

George Will reports on an article by Thomas A. Lambert, a University of Missouri law professor, who argues that the Supreme Court decision to approve Obamacare by defining its penalty for not having insurance as a “tax” may, in fact, ensure its failure:

[Chief Justice John] Roberts invoked what Lambert calls “a longstanding interpretive canon that calls for the court, if possible, to interpret statutes in a way that preserves their constitutionality.” Roberts did this by ruling that what Congress called a “penalty” for not obeying the mandate was really a tax on noncompliance.

This must, Lambert thinks, have momentous — and deleterious — implications for the functioning of the ACA. The problems arise from the interplay of two ACA provisions — “guaranteed issue” and “community rating.”

The former forbids insurance companies from denying coverage because of a person’s preexisting health condition. The latter, says Lambert, requires insurers to price premiums “solely on the basis of age, smoker status, and geographic area, without charging higher premiums to sick people or those susceptible to sickness.”

The point of the penalty to enforce the mandate was to prevent healthy people — particularly healthy young people — from declining to purchase insurance, or dropping their insurance, which would leave an insured pool of mostly old and infirm people. This would cause the cost of insurance premiums to soar, making it more and more sensible for the healthy to pay the ACA tax, which is much less than the price of insurance.

Roberts noted that a person earning $35,000 a year would pay a $60 monthly tax and someone earning $100,000 would pay $200. But the cost of a qualifying insurance policy is projected to be $400 a month. Clearly, it would be sensible to pay $60 or $200 rather than $400, because if one becomes ill, “guaranteed issue” assures coverage and “community rating” means that one’s illness will not result in higher insurance rates.

So, Lambert says, the ACA’s penalties are too low to prod the healthy to purchase insurance, even given ACA’s subsidies for purchasers. The ACA’s authors probably understood this perverse incentive and assumed that once Congress passed the ACA with penalties low enough to be politically palatable, Congress could increase them.

But Roberts’s decision limits Congress’s latitude by holding that the small size of the penalty is part of the reason it is, for constitutional purposes, a tax. It is not a “financial punishment” because it is not so steep that it effectively prohibits the choice of paying it. And, Roberts noted, “by statute, it can never be more.”As Lambert says, the penalty for refusing to purchase insurance counts as a tax only if it remains so small as to be largely ineffective.

Unable to increase penalties substantially, Congress, in the context of “guaranteed issue” and “community rating,” has only one way to induce healthy people to purchase insurance. This is by the hugely expensive process of increasing premium subsidies enough to make negligible the difference between the cost of insurance to purchasers and the penalty for not purchasing. Republicans will ferociously resist exacerbating the nation’s financial crisis in order to rescue the ACA.

Because the penalties are constitutionally limited by the reasoning whereby Roberts declared them taxes, he may have saved the ACA’s constitutionality by sacrificing its feasibility.

via George Will: The time bomb within Obamacare? – The Washington Post.

Would somebody, preferably a fan of Obamacare, explain to me how this could possibly work?  Why would an uninsured person pay $400 a month for insurance when he could pay instead a $60 per month “tax”?  (A penalty from disobeying a law might prick his conscience, but a tax carries no such shame.)  And if he gets sick, he can just sign up for insurance then (and presumably drop it later), since insurance companies by law have to accept him no matter what?

Also, since insurance companies are micromanaged by the government so that they have to include a whole menu of coverages (such as, notoriously, free contraceptives and abortion drugs, but other things too) and because they cannot control their risks by turning down people with previous conditions and the like, the cost of a policy  is projected to be $400 a month.  Isn’t that more than the typical cost of insurance?  Won’t that dramatically increase medical costs for employers, individuals, those who couldn’t afford insurance even at the earlier prices, and thus, since those folks will have to be subsidized, for the federal government?

How–theoretically, practically, in any way–can this work?

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What Are Your Thoughts?leave a comment
  • I don’t think so.

    Progressives would jump for joy if Obamacare turns out to be infeasible, because they would parlay that failure into a dire need for a fully socialized “single-payer” healthcare system.

  • wondering

    Love the Supremes.

    Especially “Baby Love.”

  • James Sarver

    “…the cost of a policy is projected to be $400 a month. Isn’t that more than the typical cost of insurance?”

    Only if it is the employee portion of an employer subsidized plan. The actual cost is much higher. Just try getting individual coverage for $400.00/month (that actually covers anything). If the ACA prescribed plans actually cost that amount somebody will be paying a huge subsidy. I wonder who that will be? Bigger deficits anyone?

  • mikeb

    I echo James Sarver. If I could find a (decent) $400 plan I’d jump on it. As it is my employer’s plan is much more expensive, and that’s not counting the portion they pay.

  • Joe

    I don’t think anyone ever thought the ACA would actually work. Pick your motive: 1. means to get to a single payer system; or 2. just wanted to get something passed so we can say we reformed healthcare (makes sense in light of the fact that no one read this thing before they passed it).

  • Dr Luther in the 21st Century

    Where is this mythical $400 plan? The Concordia plan is about 2 grand a month.

  • fjsteve

    So, Obamacare would make people less healthy. People, like me, with high premiums and high deductibles will see that if they drop coverage and just pay the penalty they will come out ahead–the only difference being that they will not get the (relatively) free wellness checks most plans offer. So those people will be more prone to serious health problems since they won’t have the benefit of early detection.

  • DonS

    I guess we’re still waiting for an Obamacare supporter to explain how this is going to work?

  • fjsteve

    DonS, the beauty of getting something signed into law is never again having to explain how it will work.

  • Nathaniel Pullmann

    I don’t know what the other commenters mean by “a plan that covers anything” but I have a high deductible plan and an HSA. The plan runs about $240 a month and my deductible is $5000 a year. Not only is the actual cost (including out of pocket expenses to cover deductible and not covered items) well under $400 per month, it covers me, my wife, and my two children. My insurance carrier has assured me several times that we comply with Obamacare. I suppose they could be wrong or lying, but I doubt it. Insurance plans for employers are outrageously expensive because they already have to cover anyone they employ regardless of preexisting conditions.