A Critical Provision Saved, But Challenges Remain for the Affordable Care Act

Andrew Stern, senior fellow at Columbia’s Richman Center for Business, Law, and Public Policy discusses the implications of last Thursday’s Supreme Court ruling on the Affordable Care Act and the challenges the legislation still faces ahead.

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Demonstrators await the decision in King v. Burwell outside the Supreme Court.

Ted Eytan | Flickr

On Thursday, the Supreme Court handed down its verdict on King v. Burwell, rejecting the latest challenge to the Affordable Care and Patient Protection Act (ACA), commonly known as Obamacare. Relying on a single phrase in the more than 900-page bill, the four petitioners argued that the federal government could not offer health insurance subsidies to individuals who purchased health insurance through the federal exchange, healthcare.gov.

The court’s decision will allow some 6.4 million Americans in states that elected not to set up their own exchanges to keep their healthcare subsidies. But taking a broader view, according to Andrew Stern, the decision places a firmer foundation under a healthcare system designed for the twenty-first-century.

“By the end of the decade, some 40 to 50 percent of workers won’t have a full-time employer,” Stern, the former president of the Service Employees International Union and senior fellow of Columbia Business and Law Schools’ Richman Center for Business, Law and Public Policy, asserts in reference to the rise of the “freelance” or “1099” economy. “This decision sets the stage for the future economy of America.”

The US system of employer-based health insurance is unique amongst developed countries, having emerged as a means to skirt temporary wage controls during World War II. The system, Stern argues, has impeded growth in the US, dampening entrepreneurship and preventing some workers from moving to new jobs. “This decision solidifies the market the ACA created and the group purchasing power that makes it work. This will allow people to take economic risks that they wouldn’t have been able to, to start new businesses and explore new opportunities.”

Writing for the majority, Chief Justice John Roberts held that, taken together, the coverage mandate, requiring most individuals to acquire health insurance, and the tax credits that make coverage affordable for many are a critical third leg to the law’s two other central provisions — “guaranteed issue,” requiring that insurers provide plans to all individuals, and “community rating,” forcing insurers to treat the entire community as a single risk-pool.

The decision notes two early experiments in expanding healthcare coverage in Washington and New York. Both states adopted the guaranteed issue and community rating provisions subsequently taken up by the ACA, but not the coverage mandate or the tax credits under scrutiny in King. The results, which Chief Justice Roberts referred to as an “economic ‘death spiral,’” were disastrous, particularly in Washington, where premiums jumped 78 percent in three years, eventually leading 17 of the state’s 19 private insurers to exit the market. By a process known as “adverse selection,” first theorized by Columbia Business School Professor Joseph Stiglitz, healthy individuals avoided buying insurance, knowing they could buy it later at the same rate should they fall sick, leaving insurers to foot the bill for an increasingly unhealthy subset of the population.

A decision to invalidate the tax credits without also removing the guaranteed issue and community rating provisions could have had a devastating impact on insurance markets both inside and outside of the exchanges. As Roberts asserted in his decision, “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.”

Despite Thursday’s victory for the ACA, substantial challenges remain for the law, particularly in Congress where the House has voted some 56 times to repeal all or parts of the law. Stern points to the Independent Payment Advisory Board (IPAB) as the next likely focus of repeal efforts. The 15-member agency, occasionally dubbed a “death panel” by some conservative commentators, was created by the ACA to find savings for Medicare. The board removes decisions about Medicare payment rates and rules from direct congressional oversight, placing them — it is hoped — beyond the reach of lobbyists. Earlier last week the House passed a bill to repeal the board.

With the potential for a democratic filibuster and a promised veto from President Barack Obama, the repeal faces uncertain prospects in the Senate, but House Republicans have vowed to keep fighting. Last Tuesday, Rep. John Flemming (R-LA) insisted “we're just going to keep sending pieces of repeal and full repeals, small repeals.”

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