Supreme Court cases are often historical, sometimes fascinating, but hardly ever so financial.
The Supreme Court has been hearing arguments this week on the constitutionality of Obama's Affordable Care Act, the health care law sometimes dubbed "Obamacare."
Although parts of this legislation are already in effect, the court will likely take a secret preliminary vote on Friday (though we won't find out the results until later) on whether the health care law is constitutional.
The decision made by America's highest court could have an immediate impact on your monthly, yearly and lifelong health costs.
Right now it's not clear which way the court could swing, but the final, public decision with opinions by the justices is expected to be announced in June. After conservative justices--who make up the majority of the nine-person Supreme Court--grilled the administration's lawyer advocating for the law, many are guessing that the court might strike part or all of it down.
At stake are three main issues:
1. Is the individual mandate constitutional?
At the core of the debate today is the "individual mandate" that would require all Americans to carry health insurance starting in 2014 or else face a financial penalty. Detractors say the government is overstepping by forcing Americans to buy coverage. Supporters say that everyone has to use health care at some point, and those who do so without paying for it (like when the uninsured show up to the emergency room and the hospital can't turn them away) should pay their fair share.
Supporters would say: Requiring every person to purchase insurance is meant to spread the cost of insurance over the entire population, which would keep the premiums low. If the law is constitutional and if predictions are correct, overall premiums could drop anywhere from 10 to 27%.
Detractors would say: This could mean a slippery slope to government-mandated health measures, like forcing people to buy broccoli, as Justice Scalia pointed out in the hearings.
2. Is the expansion of Medicaid constitutional?
President Obama's health care law would also expand state Medicaid programs to cover all households living around the poverty level. In 2011, four in ten adults living around the poverty line were uninsured for a year or more.
Supporters would say: This mandate would expand coverage to an estimated 16 million Americans, according to the Congressional Budget Office, which is important.
Detractors would say: Medicaid is handled at the state level, and some states are balking at being prodded into expanding their coverage by the federal government. It's the classic debate between state and federal power.
3. Can the rest of the health care law stand without these two provisions?
If the individual mandate is struck down, the administration has been arguing that at least two other pieces of the law would not be able to function as intended:
- The provision that insurers can't bar coverage from those with pre-existing conditions
- The provision that insurance companies can't vary rates based on age or health conditions
Supporters would say: This law doesn't make sense without those provisions, because it encourages people to game the system. People wouldn't buy insurance until they are sick or injured, and because insurance companies could not exclude them or charge them higher prices, it would impose a tremendous burden on insurance companies.
Detractors would say: Agreed! (Detractors don't want the law at all.)
The Effect on the Markets
The Affordable Care Act will affect hospitals, drug and device makers and, of course, insurance companies.
- Hospitals would benefit from the law because there would be fewer uninsured people showing up in their emergency rooms seeking care (who hospitals can't refuse). Proving that hospitals would benefit if the law were upheld, hospital stocks dropped slightly on Wednesday.
- Insurance companies have fought tooth and nail against the law, but once it was passed they've been spending money to comply. If the individual mandate gets struck down but the rest of the law is upheld, it could prove "catastrophic" for insurance companies. If the whole law gets struck down, things return to the status quo. If the whole law is upheld, insurers' profits will be deeply cut, because of a provision requiring them to spend 80% of premiums on providing health care coverage to customers, instead of putting it to marketing, overhead or profits.
- Pharmaceutical companies might see demand for their products go up because more people can afford medication, but they'll also face new fees, along with a variety of other new regulations embedded in the health care law (which are too numerous to go into here). The effect hasn't been quantified yet.
- Small businesses are divided on whether the law would drive their costs up or down. Some say it's already helped by providing tax credits to help pay for health insurance (and the legislation should lower premiums), while other companies with over 50 employees are buckling down for lean times because they will have to cover all employees' insurance even if they didn't in the past. If they don't, they'll pay a penalty.
How This Could Affect You
Setting politics aside, the outcome of the court's opinion could have a huge effect on your finances, from how much you pay in premiums to how much you pay in taxes. Here's what would likely happen if the health care law gets through the Supreme Court and all the remaining provisions are implemented in 2014:
If You Are Older or in Poor Health
Starting in 2014, the law would prevent insurance companies from turning down applicants who have pre-existing conditions. Insurance companies also couldn't charge higher premiums because of your age or health. That means if you lose your current health insurance and already suffer from a chronic illness like diabetes, you wouldn't have much trouble picking up new health insurance, and wouldn't face inflated premiums.
If You're Young and Healthy
The above provision is great for older people and those with health issues, but not so great for the young and healthy--at least right now. Young people will pay more than they otherwise would, and old people would pay less. As you get older you might come to appreciate this, but right now it would probably be an unwelcome shock to your budget (especially since younger people tend to make less).
If You Don't Want to Participate
98% of Americans wouldn't be affected by the individual mandate. That's because most Americans already receive public health insurance or private health insurance through employers. Many of those remaining would be in a low enough income bracket to receive subsidies to buy private insurance, or to be exempt from buying coverage at all. (Those in a low enough bracket will receive subsidies or Medicare, and those in a high enough bracket are expected to have the means to buy insurance. Some people in the middle may not receive government assistance but make little enough income to be exempt from the requirement.)
If you are part of that remaining 2% and you're just not interested in buying a private plan (or you don't get around to it), you would pay a penalty of $695 or 2.5% of your income--whichever is higher--in a tax penalty. That is much less than health care premiums typically cost.
If You're Under 26
One part of the law that is already in place allows children to stay on their parents' health care plans up until they turn 26. If the whole law gets thrown out, once you turn 19 or finish school (whichever comes later) you would have to find health insurance elsewhere, either through your employer or buying it privately. Right now you can only stay on your parents' plan if you do not have an option through your employer, but starting in 2014 you could choose between your parents' and your employer's plan.
If You're on Medicare
Last year the government took a few first steps to close a gap in prescription coverage (commonly called the "donut hole") under Medicare by providing discounts on brand name and generic drugs. This saved $2.1 billion for nearly 3.6 million seniors. That's an average of $583 per person.
If You Make Below a Certain Income
In addition to the expanded Medicaid coverage, if you make less than 400% of the federally defined poverty level ($92,000 for a family of four), you would be able to get federally subsidized health care, so that the premiums don't take up more than 9.5% of your income.
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Photo credit: Angela N./Flickr