By Morgan Housel
"#SCOTUS upholds #ACA individual mandate."
That was the tweet heard 'round the world this morning from the widely followed SCOTUS Blog.
We'll probably be parsing the words of the Supreme Court's decision for weeks, but it looks like the individual mandate of the Affordable Care Act, also known as Obamacare, has survived.
What's it mean?
Very few expected this outcome. Intrade, an online betting site, put the odds of the mandate being struck down at around 70%. Even staunch supporters of the mandate seemed resigned in recent days to the likelihood that it would likely be repealed.
Simplified, the bill does a few big things:
Here's what's important: According to the Census Bureau, 49.9 million Americans didn't have health insurance in 2009. Part of that is due to the weak economy; most of those without health insurance have a very low or nonexistent income. But a lot is due to soaring costs that have put insurance out of reach for the gainfully employed. According to the Kaiser Family Foundation, 69% of businesses offered workers health insurance in 2000. By 2009, that number had dropped to 60%. It's almost certainly lower today. Our health-care system doesn't work for far too many Americans, which likely explains why most of the policies outlined above are pretty popular. Most, that is, except the mandate to buy insurance:
Source: Kaiser Family Foundation, April 2012.
But there's a problem here. Without a mandate, most of the popular provisions of ACA wouldn't work. Last week, health-care reporter Sarah Kliff wrote in The Washington Post about what happened when Washington state made it illegal for health insurers to deny customers for pre-existing conditions (popular) but didn't make it mandatory to buy health insurance (unpopular):
In 1993, Washington state passed a law guaranteeing all residents access to private health-care insurance, regardless of their health, and requiring them to purchase coverage. The state legislature, however, repealed that last provision two years later. With the guaranteed-access provisions still standing, the state saw premiums rise and enrollment drop, as residents purchased coverage only when they needed it. Health insurers fled the state and, by 1999, it was impossible to buy an individual plan in Washington – no company was selling.
Kliff mentioned one customer who told her insurance company that she "very much appreciated our excellent service [and] that she would certainly pick our plan again when she became pregnant." That doesn't work. A mandate gets around the problem by forcing healthy people to pay into the system, not just the sick.
So, who wins here?
The measuring of political wins and losses misses the point altogether. The winners here are the nearly 50 million Americans who don't have health insurance. They're the majority of personal bankruptcy cases linked to medical bills, and those who couldn't quit their job because they can't afford to lose employer-provided coverage.
Health insurers might be seen as losers – shares of UnitedHealth (NYSE - UNH) , WellPoint (NYSE - WLP) , and Cigna (NYSE - CI) were all down big this morning – but it's still entirely unclear how the bill will affect their business over the long haul. On one hand, there are a raft of new rules to comply with. On the other, they'll eventually see a flood of new customers effectively mandated to buy their product. First-day knee-jerk reactions rarely reflect the true impacts of big events.
This isn't the end of the story, of course. Mitt Romney has vowed to repeal the ACA if elected president. One of the biggest complaints about the ACA is that it causes uncertainty. No one knows what might happen next, or what health-care costs will be a year or two from now. Alas, that hasn't gone away.
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