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PPACA: 3 Paths

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The U.S. Supreme Court is getting ready to devote an unprecedented six hours to hearing oral arguments about the constitutionality of the individual health insurance ownership mandate and other provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA).

One wrinkle is that a much older federal law, the Tax Anti-Injunction Act (TAIA), blocks the federal courts from considering suits seeking to prevent the implementation of new federal taxes. Taxpayers must wait until the government actually imposes a tax before they can sue to try to eliminate it.

The issues to be discussed include:

  • Whether the Tax Anti-Injunction Act (TAIA) prohibits the court from hearing the case before the penalty associated with violations of the health insurance mandate is actually imposed.
  • Is the individual mandate constitutional? If so, is it severable from the rest of PPACA?
  • And finally, are the PPACA provisions that would expand Medicaid permissible?

I don’t want to try to attempt a legal analysis of the issues, but I do want to look at the possible economic effects of the court’s ruling.

Scenario 1

The court could throw out PPACA. Then, all bets would be off. It’s hard to know what would happen then, but we’d still face rising health costs and increasing pressure to make difficult choices.

Scenario 2

The court could find that the penalty for violating the individual mandate is a tax, and the soonest this tax could be assessed would be 2015. Thus, the soonest the TAIA would permit a lawsuit to be filed would be 2015.

In that case, the soonest the Supreme Court could rule on the constitutionality of PPACA would be 2016 or 2017.

This outcome would do little to lower health care costs, and could instead escalate costs, with no sustainable improvement in quality or care.

Why? Many of the very costly provisions become effective in 2014. For example, while the cost of establishing health insurance exchanges (either at the state or federal level) depends on the type of exchange, the benchmark is millions of dollars. The initial startup cost for the Connector in Massachusetts was $25 million, with an annual operating cost of $30 million, financed by a surcharge on health insurance premiums.[1]

Consider the cost if you multiply these amounts by 51.

If the court finds PPACA to be unconstitutional, and everything established by 2016 or 2017 must be dissolved, then the results of all that spending will vanish.

The exchange program is just one component of PPACA; it also requires employers and insurers to spend heavily on new disclosure and for government agencies to do the same on new enforcement programs, and on and on.

Scenario 3

The Supreme Court also could decide that the individual mandate is unconstitutional and severable from the rest of the law.

Individuals would not be required by law to obtain minimum health insurance coverage, but all of the other PPACA health insurance market changes, including employer mandates and exchange mandates, would remain in effect.

In this case, either the states or the federal government would have to set up exchanges – Web-based health insurance supermarkets.

For the exchanges to work, insurers must want to stock the shelves of these online health insurance supermarkets with health insurance.

The exchanges, in turn, would have to attract healthy individuals who want coverage in addition to not-so-healthy individuals who want coverage.

Without the individual mandate in place, the result could be that no one shows up to buy coverage, or only the not-so-healthy individuals show up to the exchange.

In short, striking the individual mandate but upholding the rest of PPACA would result in costly requirements for employers, insurers, and state and federal governments without necessarily expanding the number of Americans who have health insurance coverage.

It’s difficult to accurately predict what the Supreme Court will decide, but what can be predicted is that any decision that causes a delay on PPACA or effectively splits the baby will increase the cost of healthcare coverage dramatically without improving the quality of care.

To prevent needless spending, the court needs to make a decision sooner rather than later.

[1] Corlette, Sabrina, Alker, Joan, Touschner, Joe, Volk, JoAnn: The Massachusetts and Utah Health Insurance Exchanges: Lessons Learned.


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