Vindicated…sort of.

The Roberts ruling doomed Obamacare…that was my argument back in June of last year.

Well, kind of.

Every right-wing pundit from Glenn Beck to Rush Limbaugh cried treason and attacked Roberts for what some called his “peace in our time” decision, while I argued that Justice Roberts’ opinion on The Affordable Care Act did not mean that he had suddenly woken up a raging Commie one morning, but that it amounted to a statement to the American people. I went as far as to suggest that the opinion would actually hurt the unpopular legislation.

Now it appears that I am not the only person who believes that.

Thom Lambert, the Wall Family Foundation Chair in Corporate Law & Governance at the University of Missouri Law School, seems to agree with me.

His recently released How the Supreme Court Doomed the ACA to Failure is a long, but great read on the destructive impact of the Roberts ruling on Obamacare.

The primary issue in NFIB was whether the so ­called individual mandate—the provision of the ACA requiring most individuals to purchase health insurance or pay a penalty to the government—was authorized by Article I. The government contended that the mandate was authorized by Congress’s express power under the article’s Section 8, Clause 3 to “regulate Commerce … among the several States.” The state challengers, by contrast, maintained that individuals who had elected not to purchase health insurance had not thereby engaged in commerce, so forcing them to do something commercial—to enter commerce—was not itself a regulation of commerce. Five members of the Court (Chief Justice Roberts and Justices Scalia, Kennedy, Thomas, and Alito) agreed and held that the Commerce Clause does not authorize Congress to order individuals to purchase insurance from a private company. They further agreed that the mandate was not authorized by the Article I provision empowering Congress to “make all Laws which shall be necessary and proper” for carrying out its Commerce Clause authority. The mandate was not “proper,” the five justices concluded, because it would compel—not regulate—commerce, and any power conferred by the Necessary and Proper Clause must be incidental to, not greater than, the expressly enumerated powers.

But all this was not enough to undermine the individual mandate’s constitutionality. Having concluded that the mandate is not a valid exercise of Congress’s authority under the Commerce and Necessary and Proper Clauses, Justice Roberts invoked a longstanding interpretive canon that calls for the Court, if possible, to interpret statutes in a way that preserves their constitutionality. Because he had determined that the mandate could not be upheld on the aforementioned grounds, Justice Roberts was willing to adopt what he characterized as a “fairly possible,” though not the “most straightforward,” reading of the ACA—namely, that the statute does not make it illegal not to buy health insurance, but instead merely imposes a tax, labeled a “penalty,” on the failure to do so. Congress’s calling the payment a penalty rather than a tax, Justice Roberts reasoned, was enough to preclude application of the Anti-Injunction Act, which limits courts’ jurisdiction to hear challenges to tax laws but, as a mere statute, may be overridden by congressional action. But, according to the Chief Justice and Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan, congressional labeling alone is not enough to keep a penalty from amounting to a tax for constitutional purposes. The penalty for not buying insurance is constitutionally a tax, the majority reasoned, because it is relatively small in size, has no “scienter” requirement (i.e., does not require an intentional failure to purchase insurance), and is to be collected by the Internal Revenue Service. Accordingly, the penalty for failure to purchase insurance is constitutionally authorized as long as it meets the Constitution’s restrictions on Congress’s taxing power. The majority concluded that it does.

Roberts found the individual mandate portion of the ACA unconstitutional, then turned around and called the penalty for nor purchasing health care insurance a constitutionally-sound tax “because it is relatively small in size”, and it is collected by the IRS. This tax/fine however, is not a deterrent because the tax/fine is significantly lower than the cost of buying insurance. This will drive the cost of insurance up, argues Lambert:

As the government repeatedly stressed in the NFIB argument, the individual mandate was necessary because of two constraints the ACA places on insur­ance companies. The first, “guaranteed issue, precludes insur­ance companies from denying or dropping coverage because of preexisting conditions. The second, “community rating,” requires insurers to set premiums solely on the basis of age, smoker status, and geographic area, without charging higher premiums to sick people or those susceptible to sickness. Taken together, these two constraints on insurance pricing create a perverse incentive for young, healthy people to refrain from purchasing health insurance until they need medical care. After all, they can always obtain coverage immediately upon becoming ill or injured (thanks to guaranteed issue), and (thanks to community rating) the insurer is forbidden to charge them a higher price reflective of the virtual certainty that they will make large claims. The penalty-­backed individual mandate was designed to prevent young, healthy people from dropping or declining to purchase insurance, thereby leaving only the older and infirm in the covered population.

If young, healthy people do exit the pool of premium ­paying insureds, insurance premiums will skyrocket. That is because health insurance premiums are based on the likely health care expenditures of the covered population. The greater the percentage of young and healthy (low expenditure) individuals in the group, the lower the resulting premiums. Conversely, when the young and healthy drop out so that the pool of insureds is, on average, older and more infirm, premiums will rise. And, of course, the higher insurance premiums rise, the more sensible it becomes for the relatively healthy to drop their insurance, pay the small “tax,” and wait to get sick before signing up for increasingly costly coverage. Efficacious penalties for failure to purchase insurance,then, are required to prevent “adverse selection” and ensure that insurance policies, as regulated by the ACA, remain affordable.

But penalties do not deter if they are set too low. Say, for example, that a parking meter costs a dollar, but the penalty for not feeding the meter is only a quarter. Who would feed the meter? Unless the expected penalty for an expired meter (the fine times the likelihood of detection) exceeds a dollar, feeding the meter is irrational.

In his opinion, Roberts pointed out this very issue with the ACA:

[I]ndividuals making $35,000 a year are expected to owe the IRS about $60 for any month in which they do not have health insur­ance. Someone with an annual income of $100,000 a year would likely owe about $200. The price of a qualifying insurance policy is projected to be around $400 per month.

So, young people, whose incomes are generally-speaking lower than middle-aged Americans, would be far better off paying that $60/month tax/fine ($720/year), than paying for the actual $400/month ($4,800/year) insurance premium. And since the ACA makes it illegal to be denied health insurance based on a pre-existing condition, most young people will play the odds (in their favor) and simply not bother buy health insurance. Obama and Congress failed to understand that the inability to purchase health insurance due to a pre-existing condition was the de facto mandate forcing young people to purchase health insurance.

So now that that threat is gone, who then is left purchasing health insurance?

The elderly and the ill, whose health care costs are considerably higher than young people.

The ACA can ONLY work if young, healthy people buy into it, since they will provide the funds to cover the health care costs of the elderly and the ill. However, lacking the ability to force young people (all people) to “engage in commerce”, the ACA has no way to secure those premiums, other than via drastic increases in the size of that “tax/fine we have to pay if we don’t have health insurance” something any politician loathes to do, and the SCOTUS has hinted would be unconstitutional (according to Lambert). As a result, policy costs will increase dramatically, making it even more obvious that you shouldn’t buy health insurance unless you’re sick.

Columnist George Will quotes the Lambert article, and agrees on the ACA’s SCOTUS-created Achilles Heel:

The point of the penalty to enforce the mandate was to prevent healthy people — particularly healthy young people — 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, “guaranteed issue” assures coverage and “community rating” means that one’s illness will not result in higher insurance rates.

So, Lambert says, the ACA’s penalties are too low to prod the healthy to purchase insurance, even given ACA’s subsidies for purchasers. The ACA’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 Roberts’ decision limits Congress’ 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 “financial punishment” because it is not so steep that it effectively prohibits the choice of paying it. And, Roberts noted, “by statute, it can never be more.” 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 “guaranteed issue” and “community rating,” 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 nation’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 ACA’s constitutionality by sacrificing its feasibility. So as the president begins his second term, the signature achievement of his first term looks remarkably rickety.

Justice Roberts, writing the opinion for the majority, doomed the ACA to failure, and in the process warned us about the politicians that we elect to govern:

“Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments. Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.” – Chief Justice John Roberts

We are the recipients of whatever government it is that we set in place…plain and simple. That’s the way the system has always been intended to work. So if government doesn’t work, if it is bloated and corrupt, and if it governs from the left, it does so because We, the People elected lazy, bloated, corrupt Socialists to govern the country.

It’s up to us to throw them out of office if we want things to change, and if we can’t do that, we may eventually find ourselves trying to figure out how to build a raft that will get us from the coast of California to Australia in one piece.

Can you hear the grasshopper now?

H/T: Ed Lopez