Death, Taxes, and Obamacare
Policy Brief by Rayyan Esmail
The Affordable Care Act (ACA), better known as "Obamacare", has faced many obstacles since its passage in 2010. The “most challenged statute in modern American history” has survived six Supreme Court challenges and two years of a Republican Congress and White House . However, the latest challenge from 20 Republican states, if successful, could be the most consequential. A win at the conservative-dominated Supreme Court would be the end of the eleven-year-old law and the health insurance it has provided for millions of Americans.
What the ACA does
It’s worth noting what is at stake. The ACA aims to ensure all Americans have health insurance. Unlike the Canadian system, wherein healthcare providers are paid directly with taxpayer dollars, the ACA created a three-legged stool meant to work within the existing insurance market and support Americans who do not have access to employer-provided insurance. The stool metaphor represents the prevailing belief at the time of the ACA’s inception that each leg was necessary for the stool to remain in place .
The first leg is the regulation of insurance companies. Such regulations disallow denying coverage to those with pre-existing conditions, end lifetime and annual limits, and allow parents to add adult children up to age 26 to their insurance plans .
In isolation, the problem with the first leg is that insurance costs would increase to match these new regulations, causing healthy people to leave their plans. With less healthy people on plans to offset the costs of sicker insurants, the price of insurance goes up again, which causes more healthy people to leave, and so on. This “death spiral” was avoided by the second leg, the individual mandate, which compelled all Americans, with some exceptions, to have health insurance. Those without adequate coverage would have to pay a fine. The potential fine would keep healthy people in the market and insurances costs down .
Even with the first two legs, insurance would still be too expensive for some, forcing them to the pay the penalty and receive no coverage. The third leg aims to directly reduce insurance costs. Healthcare for Americans whose income is below a certain threshold would be covered by an expansion of the Medicaid program. Those who make too much to qualify for Medicaid still receive tax credits to help cover insurance costs if they make less than four times the federal poverty line. Additionally, the federal government would share some of the insurance companies’ costs in providing coverage .
This three-legged stool of healthcare reform gave over twenty million more Americans healthcare coverage and millions more have enjoyed the benefits of stronger regulations and government subsidies .
In the Supreme Court
A number of legal challenges to the ACA were answered by the Supreme Court in the 2012 case, National Federation of Independent Business v. Sebelius. The individual mandate was upheld by a narrow 5-4 majority as a valid exercise of Congress’ taxing power . A 7-2 decision found that Medicaid expansion was a coercive use of Congress’ spending power, but there was no majority decision on what to do about this. The opinion of three justices, who would have restricted Medicaid expansion only to those states that opt-in prevailed over the four justices who would have eliminated Medicaid expansion altogether. The three-justice plurality became the controlling opinion because their remedy was more limited than that of the four .
The result of this particular case was one significant change to the ACA: the Medicaid expansion was now optional. Many Republican states did not opt-in to the expansion, leaving a gap of millions of Americans who make too much to qualify for Medicaid but not enough to access the ACA’s subsidies and tax credits .
Five years after the Supreme Court’s decision, President Donald Trump and the Republican party had majorities in both the House and Senate. Despite numerous attempts to repeal Obamacare entirely, the Republican Congress only managed to reduce the penalty for not having healthcare coverage to $0. Many health economists worried that this would cause the aforementioned death spiral and the Congressional Budget Office projected millions more uninsured Americans as a result of this change. To this surprise of many, once this leg was pulled from the stool, it did not collapse, and health coverage has remained relatively stable. However, the change opened a new avenue for legal challenges from those wanted to eliminate the ACA entirely .
In the Supreme Court, again
In 2018, Texas led a group of twenty states challenging the ACA, with the full support of President Trump’s Justice Department. Their argument was simple: now that the individual mandate penalty was $0, it is no longer a tax, which means it is no longer a constitutional exercise of Congress’ taxing power . The answer to that question might be interesting, but it would be inconsequential. The distinction between a $0 penalty and no penalty at all is without a difference.
However, there’s another crucial aspect to this challenge. If the court finds that the individual mandate has fallen, it must determine whether the rest of the ACA must fall with it. This is the concept of severability: whether the individual mandate is so much a core part of the Act that Congress would not want the ACA to survive without it .
Before oral arguments, the survival of the ACA seemed dicey at best. Many worried that the Republican-appointed majority would strike down the ACA; Chief Justice Roberts joining the Democratic-appointed justices wouldn’t be enough to save the ACA, like it was in 2012. However, the oral arguments on November 10 caused many to recalibrate their assumptions. Chief Justice Roberts and Justices Alito and Kavanaugh all expressed doubts about the legal arguments against the ACA .
Chief Justice Roberts told the Solicitor General of Texas “It’s hard for you to argue that Congress intended the entire act to fall if the mandate was struck down when the same Congress that lowered the penalty to zero did not even try to repeal the rest of the act. I think, frankly, that they wanted the court to do that, but that’s not our job.” .
If any two Republican-appointed justices join the Democratic-appointees, who will likely uphold the ACA just as they did in 2012, then the ACA will stand. And with a Democratic trifecta controlling the US government, it would likely not face any serious challenges for the time being.
However, predicting judicial outcomes based on statements in oral arguments is anything but a science. Justices often pose hypotheticals and ask rhetorical question to test a lawyer’s arguments without necessarily disagreeing with them. If court watchers misread the hands of those key justices, then a small disagreement over taxes could be the death of Obamacare.
Patrick Boyle, “That’s enough: Supreme Court appears poised to resolve validity of ACA and ‘move on’,” Association of American Medical Colleges, November 19, 2020, https://www.aamc.org/news-insights/s-enough-supreme-court-appears-poised-resolve-validity-aca-and-move.
Jonathan Gruber, “Health Care Reform Is a “Three-Legged Stool”,” Center for American Progress, August 5, 2010, https://www.americanprogress.org/issues/healthcare/reports/2010/08/05/8226/health-care-reform-is-a-three-legged-stool/.
Kimberly Amadeo, “Obamacare Explained,” The Balance, last updated October 30, 2020, https://www.thebalance.com/obamacare-explained-3306058.
Larry Levitt and Gary Claxton, “Is a Death Spiral Inevitable If There is No Mandate?” Kaiser Family Foundation, June 19, 2012, https://www.kff.org/health-reform/perspective/is-a-death-spiral-inevitable-if-there-is-no-mandate/.
Annie Nova, “How the Affordable Care Act transformed our health-care system,” CNBC, December 29, 2019, https://www.cnbc.com/2019/12/29/how-the-affordable-care-act-transformed-the-us-health-care-system.html.
Jane Perkins, “Fact Sheet: The Supreme Court’s ACA Decision and Its Implications for Medicaid,” National Health Law Program, April 15, 2013, https://healthlaw.org/resource/fact-sheet-the-supreme-courts-aca-decision-its-implications-for-medicaid/.
Lawrence B. Solum, “How NFIB v. Sebelius Affects the Constitutional Gestalt,” Washington University Law Review 91, no. 1 (2013): 13.
Rachel Garfield, Kendal Orgera, and Anthony Damico, “The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid,” Kaiser Family Foundation, January 21, 2021, https://www.kff.org/medicaid/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid/.
Sarah Kiff, “Republicans Killed the Obamacare Mandate. New Data Shows It Didn’t Really Matter.” New York Times, September 18, 2020, https://www.nytimes.com/2020/09/18/upshot/obamacare-mandate-republicans.html.
Katie Keith, “Supreme Court Arguments: Even If Mandate Falls, Rest of Affordable Care Act Looks Likely to Be Upheld,” Health Affairs, November 11, 2020, https://www.healthaffairs.org/do/10.1377/hblog20201111.916623/full/.