An AgencyEquity Exclusive
The U.S. Supreme Court has finally issued its ruling on the Affordable Care Act. It’s constitutional. Barely. The 5-4 decision hinged on the vote of Justice Roberts, who ruled with the conservative wing, disallowing the mandate under an expansive reading of the Commerce Clause of the Constitution. But he broke with the conservatives, though, and ruled that the penalty the law imposed on those who did not obtain their own health insurance coverage was constitutional under Congress’s taxing power.
The ruling is sort of a Solomon’s Baby: Chief Justice Roberts essentially cut the baby in half, leaving neither conservatives nor liberals particularly happy. Liberals may be disappointed that Roberts joined with conservatives in putting a hard limit on what Congress could get away with under the Commerce Clause. For generations, the federal government has been trying to shoehorn all kinds of things under the Commerce Clause – but the Court found that while the Commerce clause could regulate commerce that did take place, it was a bridge too far to conclude that the Commerce Clause allowed Congress to regulate Commerce that didn’t take place!
But conservatives and business owners of all stripes should be alarmed at what the Justices did decide: The Supreme Court has essentially said that the government can impose a tax on Americans not only on what we do buy, but on what we don’t buy as well. This is a very dangerous precedent to set: In theory, if Congress can constitutionally impose a special tax on people who choose not to buy a certain kind of health policy, it is also possible for Congress to impose a special tax on those who choose not to buy a certain kind of water heater, or a certain kind of car, or on people who choose to buy cars made by non-union workers.
On the other hand, while Roberts did side with the Courts liberals to allow this dangerous precedent, in another way, he may have stuck a knife into the ribs of the ACA:
Now that the mandate and penalty provisions are unambiguously a tax, then the bill can be repealed by a simple majority in both houses of Congress. Tax bills do not require a supermajority in the Senate to overcome a filibuster. You don’t need 60 votes in the Senate to repeal the ACA as a tax measure – you only need a simple majority.
As it stands, the bill is unpopular. It was originally passed without a single Republican vote. Republicans are likely to be motivated voters, if history is any guide: The last time Democrats were this happy about a vote on the ACA, they lost 60 house seats. Further, there are 21 Democratic Senate seats up for grabs this year, and only 10 Republican seats. The Republicans need to flip four seats to hold a majority in the Senate (two independent seats are also up for grabs).
Additionally, some Democrats may jump ship, if the ACA remains as unpopular as it is now.
Our take: If Romney is elected in November, chances are very good that the Affordable Care Act will not survive the spring session. If the bill is not repealed in its entirety, perhaps some of its more onerous provisions will meet their doom in the next Congress.
Our advice: Stay the course. This is our advice both for agency principals and for their business owner clients.
For example: Savvy business owners are looking at the anti-freeloader provisions in the bill, which stick employers with potentially nasty penalties and disincentives to hire if they grow beyond 50 employees. Specifically, the law requires employers with more than 50 workers to provide coverage to all employees or pay a penalty of $2,000 per worker (minus the first 30 workers). This is not a major concern of ours – yet. First, the provision may yet be repealed before 2014. Second, there are workarounds available, such as setting up a separate entity to employ part of your work force, breaking the company up into smaller units, each below 50 workers. Third – the penalty is substantially lower than the cost of providing the benefits anyway. So in the worst case, if you’re paying premiums of $5,000 per year per worker, and you cancel their benefits entirely, throwing them to the exchanges, employers still come out ahead.
The Congressional Budget Office estimated that only about 7 percent of workers will get kicked off their plans and forced onto the exchanges. However, a 2011 survey from the McKinsey Institute suggests that that number is 30 percent – and perhaps as high as 50 percent where employers are very educated about the provisions of the law.
Where Agents Can Add Value
Both business owners, individuals and plan members are eager for advice on how to navigate the changes afoot. Agents should be proactive about scheduling review appointments with their clients and prospects. An ACA review is a great time to examine individuals’ current coverage, see if it is in compliance with future rules (HDHPs will probably become illegal), and oh, by the way… do you want to have your own long-term-care insurance plan in place, or do you want to rely on Medicaid?
Your clients who own businesses will also be eager to hear from their agents with ideas on how best to deal with the ACA. While we don’t advise radical changes until we see how the elections go this year, it’s not too early to start laying out the options and start some decision-making processes for 2013 – the last year before the bulk of the ACA is scheduled to take effect.