The Supreme Court upheld most of ObamaCare. The reasoning behind the decision was fascinating. In a nutshell, a divided Court concluded that the individual mandate was really a “choice,” and the penalty for not purchasing health insurance was really a “tax.” You can check out more of the details in my analysis of the ObamaCare decision. The Supreme Court’s creativity aside, the big question is what it means for all of us.
First, the Court did invalidate an important part of the statute. ObamaCare expands the scope of Medicaid and offers states some funding to address the increased costs. If a state declined to expand Medicaid, however, the statute not only held back the increased funding, but it also took away current Medicaid funding to the state. In other words, the federal government was going to put a horse’s head in the state’s bed if they refused ObamaCare’s generous offer. The Court sided with the states on this issue.
The expanded Medicaid issue is important to us regular folk for a couple of reasons. The Court’s decision makes it far more likely that some states will decline to expand Medicaid coverage. For those that do expand coverage, it’s likely that state taxes will be on the rise as they try to handle the increasing health costs.
Beyond Medicaid, the ruling means several things for individuals. First, beginning in 2014, individuals must either participate in a health insurance program or pay a penalty. Called the individual mandate, it’s been the subject of much controversy over the past months. While polls show that most are not in favor of the mandate, it’s here to stay.
Beginning in 2014, the cost of not purchasing health insurance for a family of four will be $285 or 1 percent of income, whichever is greater. By 2016, this penalty rises to $2,085 or 2.5 percent of income.
Second, states will be implementing exchanges to help regulate the cost of individual health insurance policies. Exactly how these exchanges will work or how the government can control costs remains to be seen. But beginning in 2014, individuals will be able to buy individual health insurance through these exchanges.
Third, young adults up to age 26 can remain on their parent’s insurance. According to the U.S. Department of Health and Human Services, about 2.5 million people have already taken advantage of this provision, which went into effect sooner than most of the law.
Finally, the law’s provisions on preexisting conditions remain intact. Beginning in 2014, the law makes it illegal for a health insurance company to exclude, limit, or set unrealistic rates on coverage based on preexisting conditions. This part of the law is already in effect for children under the age of 19.
The preexisting condition provision of the law is a bit of a Trojan Horse. At first glance it looks like a real gift, as insurance companies will not be able to exclude individuals from coverage because they are sick or have a chronic disease. But on closer inspection, many see a real problem with this provision and the individual mandate.
The penalty for not buying insurance is much lower than the actual cost of insurance. For this reason, many are concerned that individuals will pay the penalty rather than buy insurance. Should they get sick and need coverage, the preexisting condition provision ensures that they’ll qualify for coverage.
In the final analysis, there are some clear winners from the Court’s decision: health insurance providers, Medicaid companies, and hospitals. In trading following the decision, Medicaid and hospital stocks were up sharply, even during a day when stocks overall fell hard. While insurance stocks declined, that’s likely to turn around, as more individuals will be purchasing health insurance under ObamaCare.
DR is the founder of the popular personal finance blog The Dough Roller, and the credit card review site Credit Card Offers IQ.