…The problems arise from the interplay of two ACA provisions â€” â€œguaranteed issueâ€ and â€œcommunity rating.â€
The former forbids insurance companies from denying coverage because of a personâ€™s preexisting health condition. The latter, says Lambert, requires insurers to price premiums â€œsolely on the basis of age, smoker status, and geographic area, without charging higher premiums to sick people or those susceptible to sickness.â€
The point of the penalty to enforce the mandate was to prevent healthy people â€” particularly healthy young people â€” from declining to purchase insurance, or dropping their insurance, which would leave an insured pool of mostly old and infirm people. This would cause the cost of insurance premiums to soar, making it more and more sensible for the healthy to pay the ACA tax, which is much less than the price of insurance.
Roberts noted that a person earning $35,000 a year would pay a $60 monthly tax and someone earning $100,000 would pay $200. But the cost of a qualifying insurance policy is projected to be $400 a month. Clearly, it would be sensible to pay $60 or $200 rather than $400, because if one becomes ill, â€œguaranteed issueâ€ assures coverage and â€œcommunity ratingâ€ means that oneâ€™s illness will not result in higher insurance rates.
So, Lambert says, the ACAâ€™s penalties are too low to prod the healthy to purchase insurance, even given ACAâ€™s subsidies for purchasers. The ACAâ€™s authors probably understood this perverse incentive and assumed that once Congress passed the ACA with penalties low enough to be politically palatable, Congress could increase them.
But Robertsâ€™s decision limits Congressâ€™s latitude by holding that the small size of the penalty is part of the reason it is, for constitutional purposes, a tax. It is not a â€œfinancial punishmentâ€ because it is not so steep that it effectively prohibits the choice of paying it. And, Roberts noted, â€œby statute, it can never be more.â€As Lambert says, the penalty for refusing to purchase insurance counts as a tax only if it remains so small as to be largely ineffective.
Unable to increase penalties substantially, Congress, in the context of â€œguaranteed issueâ€ and â€œcommunity rating,â€ has only one way to induce healthy people to purchase insurance. This is by the hugely expensive process of increasing premium subsidies enough to make negligible the difference between the cost of insurance to purchasers and the penalty for not purchasing. Republicans will ferociously resist exacerbating the nationâ€™s financial crisis in order to rescue the ACA.
Because the penalties are constitutionally limited by the reasoning whereby Roberts declared them taxes, he may have saved the ACAâ€™s constitutionality by sacrificing its feasibility. So as the president begins his second term, the signature achievement of his first term looks remarkably rickety.