A Quick & Dirty Synopsis of the Health Care Bill

The Supreme Court is expected to rule this week on whether to strike down part or all of the Health Care Bill  (Patient Protection and Affordable Health Care Act) –a huge piece of legislation that was passed and signed into law in March 2010.  The Bill had no support from Republicans and votes from only two Independents.

What’s in the Bill?

Here are some of the more significant provisions included in the Bill:

– Expands health insurance so that children up to age 26 may be covered by their parents’ health insurance

– Expands Medicaid coverage to more poor families

– Prohibits insurers from penalizing or dropping coverage for individuals with pre-existing health conditions

– Closes the Medicare ‘donut hole’ by providing rebates and discounts to seniors

– Creates an insurance exchange which would allow families and small businesses to compare insurance plans and costs within their states and also offers government subsidized options

– Requires that all employers with 50 or more full-time workers provide health insurance for all employees or face a penalty

– Requires that individuals not covered by Medicaid or an employer pay for their own health insurance or pay a penalty (“the Individual Mandate”).

The Price Tag

The cost for the bill came in at a little under $1 trillion–about $980 billion total.  To pay for the bill, Congress imposed the following tax cuts and revenue raisers:

– Almost 50% of the Bill would be paid for by imposing Medicare cutbacks and reducing outlays to doctors and hospitals

– The rest of the Bill will be funded by additional taxes.  For families who make $250,000 or more a year ($200,000 for single filers), the Bill created a new tax on “investable income”–an additional 3.8% tax.  This includes income from capital gains, real estate, rent, royalties, ordinary income distributions and distributions from variable annuities.  This tax would be imposed on investment income above the $250,000 threshold.  So, to the extent that a family earns more than $250,000 in income and investments, anything above that threshold would be subject to the additional 3.8% tax (on top of the usual capital gains/ordinary income/dividend income tax rates).

In addition, the Bill created another tax–a .9% increase in Medicare tax on wages above $250,000.  This would be added to the tax we already pay on Medicare above the threshold income limit.

– The Bill will also raise revenue by imposing an “excise tax” on high-end insurance plans for executives, known as Cadillac Plans.

The Controversy

The Bill was passed in the midst of much opposition and controversy while the Democrats were in control of both houses of Congress.  Almost immediately several attorney generals from various states filed claims to repeal the Bill.  The biggest claim was that the Individual Mandate–the portion of the Bill that requires and individual to purchase health insurance or pay a fine–is unconstitutional and must be repealed.

Supporters of the Bill –and the Individual Mandate–claim that when everyone carries health insurance, the costs are spread around and this could lower the overall costs of health insurance.  They claim that people should not be allowed to “opt out” of the system until they need health care because by that time, they will likely be very sick; this will increase costs to the people who do carry health coverage.  Opponents of the bill claim that the federal government should not have the right to force an individual to take on an additional expense, which should be a personal decision.

Before the Supreme Court heard the case, the law went before four different federal appeals courts, and came up with three different results.  Two of the courts voted to uphold the law, another court struck down the individual mandate, and the fourth court put off making its decision until penalties for failing to buy health insurance take effect in 2014.

Three possible outcomes

The law went before the Supreme Court this spring and the Court is expected to make its ruling by Thursday.  Here are the three possible scenarios:

– The Supreme Court could rule to uphold the law in its entirety.  This means that individuals, businesses, and insurers will continue to prepare for the various provisions to take effect.  Already, many insurers have changed their policies to comply with certain parts of the law, like expanding coverage to children up to age 26 and changing policies surrounding pre-existing conditions.  The tax changes will take effect in 2013 and the insurance exchanges would be up and running by 2014.

– The Supreme Court could rule to strike down the Individual Mandate provision.  This means that they would uphold the rest of the provisions within the Bill, including the additional taxes and expansion of Medicaid, but would prohibit the federal government from forcing individuals to purchase health insurance.  It’s likely under this scenario that the ruling would encourage states to create incentives for individuals to carry health insurance in order to address the issues that may result.

– The Supreme Court could rule to strike down the Health Care Bill in its entirety.   Recent polls show that while many Americans approve of various provisions within the Bill, the majority disapprove of the Bill itself–an indication that people don’t understand how the Bill will help them.  If the Court repeals the law, there will likely be a movement to replace it with another bill–but it will be a while.  Already many insurers have changed their policies and claim they would keep the consumer-friendly changes in place should the law be struck down.  But since it’s an election year–and judging from the divisive, slow-moving Congress– it’s unlikely that anything would be done to replace the bill until after the election.

My two cents: I think the Supreme Court will strike down the Individual Mandate–while many of the Court Justices seemed to be supportive of the measure in the beginning of the proceedings, the tone shifted a bit by the end.  The issue of allowing the federal government/Congress to control an industry–health care–in the name of commerce is troublesome, and could set a controversial precedence.  Striking that provision could motivate state legislators to create their own laws to manage and enforce a reasonable alternative to the Individual Mandate–to help reduce the costs of health care for all and create a more efficient and effective system.