Even though the Supreme Court ruled in 2010 and again in 2012 that the Affordable Care Act (ACA), known as Obamacare, was constitutional, US District Judge Reed O’Connor ruled that the ACA is now unconstitutional. O’Connor declared the entire law unconstitutional since the individual mandate was removed when Congress passed a tax reform bill at the end of 2017.
Although the decision will be appealed, likely all the way to the Supreme Court, O’Connor’s decision stands for now. Since contracts have already been signed for 2019, the decision, if not successfully appealed, will affect the healthcare market starting in 2020.
There are mixed legal views regarding the success of an appeal, meaning some scholars believe O’Connor was correct and others view his decision as wrong. O’Connor justified his view, noting that things are different today than they were in 2010 or 2012.
When the Supreme Court narrowly voted to uphold the ACA, the majority opinion noted that the penalty for not buying insurance was indeed legal. They further ruled that the Interstate Commerce Clause, which makes it illegal for the government to force an American to purchase a product they simply do not want to purchase, did not apply in this case.
Chief Justice Roberts said that the penalty is simply a tax placed on a specific group for taking a specific action (not purchasing health insurance). This is, of course, constitutional since the government places special taxes on people who purchase certain products like gasoline, cigarettes, and alcohol.
The penalty/tax is akin to the Social Security Act. In that case, the federal government forced every American wage earner to purchase an annuity while working, providing income during retirement. Instead of charging a fee for Social Security, the government placed a tax on all wage earners.
While O’Connor would likely have ruled the other way if the penalty was still in effect, without the penalty, there is not sufficient revenue to cover the cost of the ACA so the entire law will fail and is indeed unconstitutional.
It remains to be seen what happens now.
A Free-Market Solution
The best solution would be for the Democrats who will control the House of Representatives to find a compromise solution with the Republicans, who have a majority in the Senate. Since we have a president who seems to have the mind of a Republican and the heart of a Democrat, a compromise solution would be welcomed by President Donald Trump.
Trump continues to say that, in the end, we will have great healthcare. As long as the Dems move off of their single-payer position and GOP moves off of its strict requirements forcing more individual responsibility, a solution should be attainable.
Even if that happens, the new law will focus on who will pay for the care and how much minimum coverage each American should have, rather than focusing on reducing health care cost. In fact, even the ACA didn’t focus on cost reduction. The result of the ACA was that premiums rose at a faster rate than the historical average and deductibles were set so high that people couldn’t use their insurance unless there was a catastrophic event. In addition, Americans had fewer healthcare choices.
Reducing the price of healthcare services may not be that difficult. The main problems with healthcare are that the price is too high and there is not sufficient quantity available to the market. If this happened in any other market, the solution would be obvious.
Gasoline was once priced as high as $4 per gallon. And there were times when gasoline became in short supply, even rationed during the 1970s. Today, the price is mostly under $2.50 per gallon and there is no talk of any shortage. Why?
Prices fell and quantities increased simply because we set policy to significantly increase the supply of gas. The increased supply, brought about by new technology and increased drilling, led to reduced prices, increased quantities, and more competition.
A similar approach should be considered in the healthcare market. If a policy was set to vastly increase the supply of doctors and other medical professionals, the increased competition would dramatically reduce prices, increases the number of services available, and improve the quality of healthcare services.
That’s the way competition works and why a single payer system, which would eliminate all competition, is exactly the wrong action to take.
Some will argue that the market for healthcare services is much different than the market for gasoline. That’s true because if gas prices are too high, consumers can cut consumption. Consumers cannot cut consumption of healthcare services (meaning a very inelastic demand) if they are sick or injured. Still, free-market principles apply.
In fact, since there is a very inelastic demand for healthcare services, even small increases in the supply could cause large decreases in the price.
So, to really solve the problem of high prices, low quantity, and slow innovation, there must be an increase in the supply of medical professionals. Also, the increased supply will minimize the effect of government control in the healthcare market, recognizing that there will be some government programs to help the poor, the disabled, and the elderly.
This “supply-side” solution has always worked in the past. It can work with the healthcare market too.
Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years. www.facebook.com/fundingdemocracy @mbusler