Implications of the ACA Supreme Court Case

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The Trump Administration presented an amicus brief before the Supreme Court arguing the entire ACA is now unconstitutional because Congress in a 2017 tax law eliminated fines for violating the individual mandate. This note summarizes the brief, evaluates the likelihood the argument that the ACA is unconstitutional will prevail, and discusses potential actions Democrats can take to protect health insurance.

Summary:

The brief makes four arguments

  • Plaintiffs have the right to sue,
  • Eliminating the fines for the individual mandate means the law is no longer a tax law and is instead an unconstitutional mandate,
  • The individual mandate is inseverable from the guarantee-issue provision and the community-rating provision of the law,
  • The remaining provisions of the ACA are inseverable either due to the repeal of the fine for violating the individual mandate or the finding that guarantee-issue and community-rating provisions no longer apply.

Comments:

Comment One: I am not a lawyer and cannot comment on standing, which is a pure legal issue.

Comment Two: The previous Supreme court case decided 5–4 that the ACA was a tax law and not an unconstitutional mandate. This article explains that Roberts saved the ACA by finding that it was consistent with Congress’s tax authority.

Now that the tax rate for violating the individual mandate has been zeroed out it is harder to argue the individual mandate is a tax.

Comment Three: Many Congress people supported the provisions on guarantee issue and age rating in the ACA because the individual mandate forced healthy people to obtain insurance even if they were highly leveraged and struggling financially. There is a lot of empirical evidence supporting the view that in the absence of the individual mandate fewer healthy people would obtain health insurance and more people would take out short-term health plans leaving themselves underinsured. The increase in the number of healthy people who go without health insurance or choose to underinsure increases insurance premiums and decreases competition in state exchange markets.

The ACA states that provisions of the law are severable and that the removal of one provision does not invalidate the rest of the law. However, there is no doubt the modification of the law by eliminating fines for the individual mandate alters the risk pool, has a large impact on insurance firms, and was not the outcome desired by many in Congress when they voted for the ACA.

Comment Four: The elimination of the guarantee-rating and community-rating provisions of the ACA would also alter the economic impacts of other aspects of the law including the premium tax credit, annual and lifetime benefit caps, and the employer mandate.

Currently, premiums and the premium tax credit are based on the age of insured households. A ruling by the Supreme court on behalf of the plaintiffs in this case would allow insurance companies to base premiums on health status instead of or in combination with age. The actual regulatory authority over premiums would probably revert to state governments.

These changes in premiums would result in either the denial of insurance coverage or prohibitively expensive insurance for people with pre-existing conditions. It is likely most insurance plans would impose annual and/or lifetime caps on benefits. These changes would even make health insurance unaffordable or unavailable for some high-income people with pre-existing conditions.

The premium tax credit would be unworkable or would work in a way drastically different than intended by the ACA even if the Supreme Court ruled that it was severable from protections in pre-existing conditions.

Comment Five: The court may side with plaintiffs on the main issues raised in this case. Thomas and Alito dissented in the previous case and are likely to do so again. The logic used by Roberts has been undermined by the repeal of fines for the individual mandate. One Bloomberg law article found that Gorsuch and Thomas are the justices most likely to overturn an entire law because of the removal of a specific item. However, other justices may be willing to remove the protections for people with pre-existing conditions, which would essentially cripple other aspects of the law like the premium tax credit.

It is easy to envision an outcome to this case where a majority of justices rule the ACA unconstitutional in separate decisions reflecting different legal theories.

Potential Actions by Democrats:

The overwhelming majority of Republicans in the U.S. Senate (perhaps all) want to kill the entire ACA. If the Republicans retain control of the U.S. Senate and the Supreme court rules the ACA is unconstitutional, millions will lose their health insurance or gravitate towards inadequate insurance coverage. The avoidance of this outcome and near-term progress in improving health insurance markets in the United States requires a Democratic sweep in November 2020.

The legal threat to the ACA before the Supreme court is the result of a tax law change. The easiest way to save the law is through the passage of a new tax law. Most legislation requires 60 votes to clear the U.S. Senate. Tax changes can clear the Senate with a simple majority though a process called reconciliation. Tax changes addressing issues raised in the case before the Supreme court could conceivably take place before the Supreme Court ruling rendering the current court case moot.

The simplest or most obvious tax change ending the legal challenge to the ACA is is to restore fines for violating the individual mandate. However, the individual mandate is unpopular, and the fines could be zeroed out again when the Republicans regained power.

The imposition of fines for violating the individual mandate is not the only way to discourage people from foregoing health insurance or underinsuring and assuring stable state exchange health insurance markets. For example, the tax code could be modified to reduce standard or itemized tax deductions for people forgoing health insurance coverage. Congress could expand the premium tax credit used to purchase state exchange health insurance markets for middle-income young adults. Congress could expand volume of transactions and increase competition in state exchange health insurance markets by creating an incentive for employers to subsidize the purchase of state exchange insurance by employees. Readers interested in some potential tax proposals impacting health insurance markets and this case should consider this other article on Medium.

Another way to protect people with pre-existing conditions, if the Supreme Court rules that the individuals mandate and protections for people with pre-existing conditions are inseverable, involves giving people with pre-existing conditions an affordable public option. This approach requires a 60-vote majority in the U.S. Senate unless the Democrats eliminate the filibuster.

Wouldn’t the creation of a robust public option be an ironic outcome of a court case seeking to eliminate the entire ACA?

Concluding Remark: The Supreme Court is likely to overturn significant portions of the Affordable Care Act. However, a future Congress and a future President can overturn this result and create a much better insurance system. The future of the ACA and health insurance more broadly depends on control of the U.S. Senate than on the confirmation of a new Supreme court justice.

Originally published at http://economicmemos.com on October 14, 2020.

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