And so it has come to pass that the U.S. Supreme Court has ruled the Patient Protection and Affordable Care Act, or “ObamaCare,” constitutional, albeit by the thinnest of margins. The Justices ruled, 5-4, that justifying the so-called “mandate” under the Commerce clause of the Constitution doesn’t hold water. But they also ruled, 5-4, that the mandate does pass muster, if you look at it as a tax. This is because Congress certainly has the nearly undisputed plenary power to levy taxes. The fact that both Congressional Democrat supporters and the President Obama furiously denied that the mandate amounted to a tax throughout the deliberation process in Congress was not, ultimately relevant to the decision.
The practical effects of the ruling:
• No more filibuster protection! Revenue bills don’t need a 60 vote majority in the Senate. This law can be overturned with a simple majority. This Senate election cycle just became critical for both parties. It won’t be pretty. Think “two dogs in a pit.”
• The Democrats have a tough battle to sell this. The last time they made an election over this law, the Democrats lost 60 seats in the House. And they have more seats in the Senate up for grabs, by far, than Republicans do this cycle.
• The Supreme Court essentially determined that the Democrats passed the biggest tax increase in American history.
• The law is now projected to cost 2.6 trillion over the next 10 years – nearly triple the original 10-year projections in 2010.
• The law could well be repealed in its entirety next year.
Actions for Individuals
Now that we’re here, what does that mean for individuals?
First, don’t make bets you can’t afford to lose. The temptation for young and healthy people to save a few bucks by canceling coverage now is strong. After all, come 2014, the penalty… oops, I meant “tax” … for not having coverage is only $95, under the current law. It goes up sharply from there, but the tax is still much cheaper than maintaining coverage.
But what happens if you lose the bet? If you get sick or hurt without coverage, and the law gets repealed next year, you could be left with a pre-existing condition and no creditable coverage at all. Which will make it expensive or impossible for you to get individual coverage at all. And if the law is repealed, then 2014 won’t save you. The provision that forbids insurance companies from discriminating against individuals with pre-existing conditions would likely get thrown out with the rest of the law. If Congress keeps this provision, after all, we’re back to the mandate question, because a universal mandate would be the only way to make this workable.
Recommendations For Employers
Meanwhile, HR professionals and plan sponsors should begin setting up their compliance calendars. We’re still waiting for the Department of Health and Human Services to finish writing tens of thousands of pages of regulations to administer the plan. And of course, if there’s ever something that stimulates job creation, its tens of thousands of pages of regulations!
Plan sponsors can, however, begin their employee census, and making headcount projections. We definitely recommend working to open lines of communication with your employees about what to expect with the new law coming down. Be aware that there are anti-freeloader provisions written into the law that act as a disincentive to businesses to hire beyond 50 employees. Specifically, The new law requires employees with 50 full-time employees or more to provide coverage, or pay a fine of $2,000 per employee – except for the first 30.
But the average cost of a health care plan is much greater than $2,000 per employee per year in most cases. So where employers do expand, they have a powerful incentive to drop their employer plans and throw people onto the state exchanges.
But this throws another monkey wrench into the gears and we’re still working through it: Where there is no state exchange set up – and a number of state governors have already made it know they will not comply with the law’s mandate on state governors – what happens then? Well, nobody knows for sure yet. Another round of litigation is in the works, even as the clock is ticking away to 2014.
Purely as a matter of execution, the PPACA is already coming off the rails.
Which is just another testament to how poorly the law was designed and crafted.