The New and Even Worse Obamacare
The Court’s rewriting of the law strengthens the case for repealing it.


Yuval Levin

First, the Court ruled that the individual mandate would have been constitutional if, rather than being crafted as a legal requirement with a penalty for non-compliance, it had been crafted as a tax from which those who were insured were exempted and that, rather than be overturned, the mandate should be treated as though that was indeed how it was crafted. The Chief Justice’s opinion argues that the mandate should now be understood as essentially an optional tax — people have the choice of buying insurance approved by the federal government or paying that tax.

Decades of academic studies of the question of driving insurance coverage with penalties and incentives have found that a mandate crafted this way would have a significantly smaller effect than a mandate that was structured as a legal requirement with a penalty. (The Congressional Budget Office discussed some of that literature in this paper from 2010.) The basic reason appears to be that a lot of compliance with legal requirements is driven by people’s inclination to do what they are required to do by law, quite apart from the cost of breaking the law. When the imperative to buy insurance is instead presented as a choice between two options, more people will be likely to choose the cheaper option (which, for almost everyone, will be paying the tax rather than buying the coverage). If Obamacare is not repealed by 2014, the behavioral economics of insurance decisions suggests, today’s Court opinion sets up the Obamacare system for an insurance death spiral — less expressly than an outright striking of the mandate while leaving the rest of the law intact, of course, but pretty expressly.

Second, the Medicaid portion of the decision is very important, and (to me) rather surprising. The Court essentially ruled that the Medicaid expansion in Obamacare is optional for the states. Obamacare as originally written would have required states to participate in the huge expansion of the (unreformed, and very badly designed) program, and states that did not participate would have lost all of their federal Medicaid dollars. That expansion accounted for about half of the overall reduction in the uninsured scored by CBO. The Court now says that states choosing not to participate in the expansion must be able to remain in essentially today’s Medicaid program — they would not get the new federal money that Obamacare allocates for the expansion, but they would not lose the funding arrangements they have with Congress now. Here again, the Court simply rewrites a portion of the law to answer a constitutional objection rather than ruling that portion unconstitutional.

Expanding Medicaid coverage could cost the states a great deal of money over time. If Obamacare is not repealed, I think, many states will choose not to expand their Medicaid programs, and as a result far fewer uninsured people will be covered under Obamcare than would have been otherwise. Moreover, in states that do this, a gap will open up between the lowest income level eligible to receive subsidies in the Obamacare exchanges and the highest income level eligible for Medicaid, and it is far from clear what the federal government or the states will do about that.