How the Supreme Court Doomed the Affordable Care Act to Failure

NCPA January 9, 2013

The Supreme Court's surprise ruling on the Affordable Care Act (ACA) has left many observers wondering about the implications of the ruling on the law itself, says Thomas A. Lambert, the Judge C.A. Leedy Professor of Law at the University of Missouri Law School.

• In a 5-4 decision, the Supreme Court ruled that the ACA is constitutional.
• In writing the opinion, Chief Justice Roberts, argued that the individual mandate is nothing more than a tax.
• However, the Court struck down the provision that would deny Medicaid funding to states that did not expand their Medicaid roles.

Together, the ruling has a profound impact on the health care market and is likely to raise premiums and the cost of medical care. For example, the cost of paying the tax for not having insurance is not steep enough to encourage young, healthy individuals to enter the health care market. These individuals would rather take the risk and pay the penalty because it would be cheaper than acquiring health insurance.

This is problematic considering that the infusion of younger and healthier individuals is necessary to spread risk in the market and lower overall premiums. In addition, the decision also limits Congress's ability to increase the penalty.

Proponents of the ACA argue that the subsidies in the bill will entice younger people to purchase insurance. However, the subsidies are too small and out-of-pocket costs for insurance will be much higher than simply paying the tax.

Additionally, the efforts to reduce medical costs are likely to fall short of achieving their goals. The ACA has aimed at doing the following:

• Increased funding for eliminating waste, fraud and abuse.
• Price controls on Medicare charges.
• Emphasis on preventative care.

There are other measures as well but none of them attack the root of health care inflation: the lack of competition in providing medical services. If consumers were put in a position to pay more for their health care, there would be more emphasis on finding an affordable insurance plan. As a result, insurance companies and other medical services would compete to lower their prices and attract new customers.

Source: Thomas A. Lambert, "How the Supreme Court Doomed the ACA to Failure," Regulation, Winter 2012-2013.