The mandate

The PPACA stipulates that from 2014 people who remain uninsured will be forced to pay a penalty, rising by 2016 to be whichever is greater of $695 or 2.5% of income. Various people, including members of Indian tribes and some religious groups along with some low-income households, will be exempt from this requirement. Furthermore, the provisions of the mandate will not materially affect people who already have insurance through their employer, a public programme or an individual insurance plan. Altogether nearly 90% of non-elderly people will either have coverage or be exempt from the mandate (Henry J. Kaiser Family Foundation, 2012). Yet, while it may not directly impact on a high proportion of people, in the context of a health system that relies heavily on market provision, the mandate is a means of collectivising risk. The mandate provides an incentive to healthy individuals, who might choose to save money and chance going without insurance, to join the aggregate insurance pool. Further, to the extent that healthy individuals are encouraged to contract with private insurers, the mandate compensates insurers who were forced by other parts of the PPACA to accept clients with pre-existing health problems who, by definition, constitute a high risk.

The critical vote on the Court to uphold the mandate came from an unanticipated source as Chief Justice John Roberts joined with the four members of the Court who had been expected to support the law. Roberts justified his vote not on the grounds primarily stated by advocates, which was that the mandate was constitutional according to the Commerce Clause. Instead, Roberts ruled the mandate acceptable on the grounds that the penalty was in fact a legitimate tax (Mariner et al., Reference Mariner, Glantz and Annas2012). President Obama, who was himself a latecomer to the principle of the mandate (Cline, Reference Cline2012), had been anxious to avoid labelling the penalty as a tax, preferring to frame the issue in terms of the costs incurred by people choosing to forego insurance but then needing health treatment. He explained: “for us to say that you've got to take a responsibility to get health insurance is absolutely not a tax increase. What it's saying is, is that we're not going to have other people carrying your burdens for you anymore” (ABC News, 2009). Hence, Roberts created a public relations problem for the administration, but the importance of his vote cannot be overstated as the four justices who dissented maintained that the rejection of the mandate represented such an unravelling of the PPACA that the whole law should be struck down. Thus, whatever Roberts’ reasoning, his vote did save the fundamentals of the law.

The practical effect the mandate will have is difficult to gauge. The presumption is that people should take out insurance, but the PPACA does not make it illegal not to do so. In exchange for remaining without insurance people liable to the mandate will pay a tax, but for many that will likely remain a cheaper option than getting insurance. In September 2012, the Congressional Budget Office (CBO) upped its initial estimate of how many people would pay the tax (or penalty) in 2016 from 4 to 6 million, which would bring in anticipated revenue of $8 billion (Baker, Reference Baker2012).

The Medicaid expansion

The PPACA included two main strategies for significantly reducing the number of Americans lacking health insurance. First, state level health insurance exchanges are to be created that will act as regulated insurance markets allowing people to choose from a variety of private insurance plans. The federal government will provide subsidies to help pay the premiums for these plans, on a sliding scale, to people with income up to 400% of the federal poverty level. According to CBO projections made at the time of the law's passage, 24 million people would get their health insurance through these exchanges by 2019 (CBO, 2010). Second, new Medicaid rules were expected to result in coverage for 16 million Americans by 2019 (CBO, 2010) as everyone with an income <133% of the federal poverty level would become eligible for the programme. Importantly, eligibility will simply depend on income rather than family circumstance meaning that single adults without children, effectively currently ineligible, will be covered.

Although the programme is not compulsory, all states do participate in Medicaid but with varying degrees of generosity. In order to encourage all states to engage with the proposed expansion of the programme, the PPACA offered very strong financial incentives. On the carrot side, the federal government would pay for all the newly eligible enrollees for three years rather using the normal complex cost-sharing rules between the federal and state governments. After that initial period, the federal government would pay 90% of the additional costs. On the stick side, the PPACA stipulated that any state that did not expand its coverage would lose its entire Medicaid funding. The Court decreed that this latter aspect went beyond financial encouragement and constituted an act of economic bullying by the federal government (Landers, Reference Landers2012). Hence, the Court concluded that states could enlarge their Medicaid provision using the newly available federal dollars but could not be denied their existing funding if they chose not to. In short, Medicaid expansion became optional for the states, meaning, as phrased by James Morone (Reference Morone2012), “Stingy states may choose to stay stingy”.

The incentives to participate remain strong as states will receive a significant infusion of federal money, but there would be some administrative costs to bear even in the initial three years. Moreover, some state policymakers already feared that their Medicaid costs will be driven up as a consequence of the individual mandate, as people already eligible for the programme but not claiming their entitlement would begin to do so in order to avoid the mandate's penalties (McDonough, Reference McDonough2012). As any such people would not be newly eligible, they would be funded under the normal programme rules. In this context, and also driven by ideological and partisan reasons, some Republican Governors used the opportunity afforded by the Court to announce that they would not play ball with ‘Obamacare’. Governor Rick Perry of Texas referred to the ‘Orwellian named PPACA’ and declared that his state would not be expanding its Medicaid programme, despite the fact that 25% of the state's population lacked insurance (Fernandez, Reference Fernandez2012).

Assuming the Governors of Texas and Florida among others follow through on this initial rhetoric it would mean that one consequence of the Court's partial unpicking of the Medicaid expansion is that some of the most economically vulnerable Americans will remain without government assistance, while people higher up the income ladder will get help. Since the PPACA anticipated that people with incomes below the poverty line would get their health coverage through Medicaid, the law does not offer assistance to these people to purchase insurance through the state exchanges (nor does the mandate apply to them). In contrast, people with incomes between 100% and 400% of poverty will get subsidies to enable them to purchase private insurance.

Following the Court's decision, the CBO updated its assessment of the likely impact of the PPACA. While not specifying how states would behave, the CBO estimated that Medicaid would cover 6 million fewer people by 2022 than if the full planned expansion were to have taken place. Of these, it predicted 3 million would be insured through the exchanges. On this basis, the CBO concluded that in 2022 there would remain 30 million uninsured (Pear, Reference Pear2012).