Published for economics21.org, June 28th, 2012
Today’s Supreme Court decision is complex and will likely take weeks to fully digest in terms of what it means for the future of ObamaCare.
But a few things are becoming clear. For starters, the Court found that at least one part of ObamaCare is indeed unconstitutional. Specifically, the provisions of the statute by which the federal government would try to coerce the states into a massive Medicaid expansion were ruled invalid by the Court. This could potentially have very significant implications for the law, including how many people gain coverage and federal costs for the premium credit program (which is supposed to cover people above Medicaid eligibility up to 400 percent of the federal poverty line).
Second, the fact that the Supreme Court allowed the mandate to stand by asserting that it is really a tax and not a mandate could have both important political and legal repercussions. Among other things, if the mandate is just an optional tax that can be paid in lieu of getting health insurance, then the basis by which the law was estimated by the Congressional Budget Office (CBO) would seem to be flawed. CBO, taking a page from the book of “behavioral economics,” assumed that very large numbers of American would sign up for insurance under the law even though it would be against their financial interests to do so. For many people, they would be far better off paying the tax than paying premiums to a health plan, but CBO assumed they would pay premiums nonetheless largely because signing up for coverage would be perceived as “the right thing to do” given its “mandatory” nature under federal law. This was always a very dubious assumption by CBO, but now, based on the Court’s ruling, it would seem to be even less plausible. Today, the Court essentially called ObamaCare a “play or pay” option for Americans. The Court has now said that the law is only valid under the Constitution if it really is valid choice for citizens to pay the tax in lieu of premiums. If CBO revises its estimates accordingly, the coverage numbers could fall dramatically even as the federal deficit estimates take a very large hit.