LONDON, UK (GlobalData), 28 June 2012 - At long last, the US Supreme Court announced today its decision on the constitutionality of President Obama’s signature legislative achievement, the Patient Protection and Affordable Care Act (ACA), more commonly known as Obamacare. In upholding the ACA, including the contentious individual mandate, the Supreme Court gave a major boost to insurance companies, pharmaceutical companies, and healthcare providers.
The issue has been so contentious, so hotly debated, that no decision rendered by the Court would have been entirely surprising. Perhaps the most striking thing about today’s opinion is that it was led by the Court’s conservative Chief Justice John Roberts. In his ruling, the Chief Justice determined that the individual mandate portion of Obamacare is constitutional, but on very narrow grounds. The Court rejected the Obama administration’s first two arguments for the mandate’s constitutionality. The first argument was that the individual mandate was legal under Congress’ authority to regulate interstate commerce. This argument was embraced by the Court’s four liberal judges, but did not win a majority. The next argument the administration put forward was that the mandate is constitutional based on the Necessary and Proper Clause of the Constitution, but this argument was also dismissed. The argument embraced by Justice Roberts, along with the four liberal judges, is that Congress has the power to impose the individual mandate as a form of a tax. The Chief Justice summarized his conclusion regarding the taxing power in a footnote to his opinion:
“Of course, individuals do not have a lawful choice not to pay a tax due, and may sometimes face prosecution for failing to do so (although not for declining to make the shared responsibility payment, see 26 U. S. C. §5000A(g)(2)). But that does not show that the tax restricts the lawful choice whether to undertake or forgo the activity on which the tax is predicated. Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not lawfully do is not buy health insurance and not pay the resulting tax.”
Many Americans will be furious about the Supreme Court’s ruling, and the political implications will be hotly debated. While it is too early to tell which presidential campaign or political party might benefit the most from the decision, it is not too early to see that the decision is a win for the healthcare industry. First and most importantly, the ACA has always been a means for boosting the healthcare industry due simply to a huge influx of people who did not previously have access to healthcare. These individuals are sure to require doctor visits and will take more drugs than they otherwise would have, not to mention buying health insurance for the first time.
The ACA also includes a major expansion of Medicaid to include the lowest-income Americans. This expansion also withstood a constitutional challenge. One plank of the ACA called for Medicaid-related penalties for states who did not implement the new coverage requirements. The Supreme Court struck down the penalty, but otherwise left the Medicaid expansion in place. Medicaid currently covers disabled Americans and poor families, but will now be expanded for the first time to cover poor Americans who do not have children. States will have the option not to participate in the Medicaid expansion without penalty. Although some states will surely make a political point of opting out of the expansion, we believe that pressure to help needy residents obtain medical care will eventually drive all states into the Medicaid expansion.
Today’s decision must also come as a relief to healthcare providers who have been preparing for all of the changes legislated by the ACA. The public and industry have had two years to interpret and understand the changes in the law, and any ruling other than one upholding the law would have sent the industry into disarray. Although significant momentum exists behind certain reforms, especially the most popular insurance reforms, a decision denying the ACA would have created regulatory uncertainty. Today’s decision removes a cloud that has been hanging over the industry, and leaves blue skies ahead.
*Supreme Court Backs Obama
This Expert Insight was written by Dr. Jerry Isaacson, Head of GlobalData'a Healthcare Industry Dynamics analyst team.
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